International: Europe: Go west


Are Asian investors likely to continue their interest in the European insurance market? Edmund Tirbutt investigates.

The European insurance market has proven attractive to Asian investors in recent years. In September, Chinese conglomerate Fosun, the majority shareholder of Peak Re, was listed as one of five potential buyers in the privatisation of the insurance arm of Portugese state-owned bank Caixa Geral de Depósitos. Less than two years earlier, Lloyd’s reinsurer Catlin announced the formation of a strategic partnership with China Re.

Japanese firms have been even more active. In 2008 Tokio Marine Holdings acquired Kiln, in 2010 NKSJ Holdings purchased a 99% stake in Turkish insurer Fiba Sigorta and in 2011 Nippon Life bought significant convertible subordinated bonds in Allianz. Meiji Yasuda Life has also been active in Poland, in partnership with Talanx AG of Germany, acquiring substantial stakes in Europa Group and Warta Group.

Continuing trend
Insurance analysts are expecting the trend to continue, stressing that European insurers have demonstrated remarkable resilience during the recent economic downturn, despite Aegon requiring government support. While some major players have had their credit ratings downgraded slightly since 2007, others have experienced no change.

Rob Jones, director of the Europe, Middle East and Africa insurance group at Standard & Poor’s, says: “Generally speaking, European insurers are sticking to their knitting and haven’t strayed into complex monetary instruments. The bulk of them have a stable outlook and around 5% have a positive outlook, but for about 20% the outlook is negative because low interest rates are hindering investment returns.”

Despite enjoying at least some relief through recent increases in returns from longer-yielding government bonds, the companies with most difficulties are life insurers, with their business most affected by investment returns and some guaranteed products.

However, reinsurers like Munich Re, Hannover Re, Swiss Re and Scor have fared well due to their general insurance focus. Non-life insurers have performed better than life insurers but not as well as reinsurers, and in areas such as Scandinavia, Switzerland and, more recently, Germany insurers have benefited from premium increases, making it easier to realise underwriting profit.

A trend towards a decrease in claims frequency and value, particularly in motor lines in Italy and Spain has also helped. This reflects the fact that recession has resulted in people driving less and has lowered the cost to insurers of obtaining replacement vehicles.

Attractive valuations
According to financial services group Nomura, the European insurance sector is currently trading at 1.4 times net asset value compared to 1.5 to 1.8 times before the collapse of Lehman Brothers in 2008.

Moungmo Lee, general manager for analytics at AM Best Asia-Pacific, says: “The investment asset sizes of some of the Asian companies, including insurance companies, have grown to a size where they need a global portfolio. In the past this would have been mainly the Japanese insurance companies but I would not be surprised to see some Asian companies bidding for opportunities similar to that offered by Caixa Geral de Depósitos.”

But some experts consider the terms Asian and European to be too broad to be applied as a worthwhile generalisation. Andrew Holderness, global head of the corporate insurance group at international law firm Clyde & Co, draws a clear distinction between developing and developed markets on both continents.

He says: “Insurers from developed markets such as Japan, Hong Kong and South Korea are certainly looking beyond their borders for growth and profitability. At the moment their primary targets appear to be in the Asian emerging markets but they are increasingly looking to the Middle East and Eastern Europe for opportunities as well.

“Many larger players already have an interest in the more developed European markets and will likely re-focus their attention on this region once the current economic uncertainty has passed and the rates start to harden.”

He adds: “It is also highly likely that once insurers and reinsurers from more developing Asian markets like Malaysia, Indonesia and, of course, China have built sufficient scale, expertise and brand recognition that they will start to look at international investment opportunities in Europe and elsewhere.”

Eastern Europe
Holderness stresses that the developing markets of Eastern Europe are attractive for insurers looking for growth and that, according to Munich Re research, the region ranks second behind emerging Asia in terms of projected growth in property and casualty premiums over the next seven years.

But he also points out that, even though more developed European markets are well established and fiercely competitive, they do retain an enduring appeal, especially the London and Lloyd’s markets.

Nevertheless, there is a broad consensus that Asian insurers are unlikely to create a dominant position in Europe in the foreseeable future as competition is simply too fierce and the established players like Generali, Axa, Allianz and Vienna Insurance Group have such a strong grip on the region.

Michael Klien, European insurance analyst at Nomura, says: “It’s hard to see in the short‑to‑medium term how Asian companies could be dominant unless they buy a very major European player. These companies would cost a lot of money and some of them have complex shell structures, but it’s not impossible and a big investor could do it. But don’t expect anything to happen until the uncertainty surrounding Solvency II has cleared up.”

Indeed, most experts are actually more excited about the prospects of further expansion by European insurers into Asia. China’s insurance market, which has been growing at a rate in excess of 20% a year for the last seven years, is singled out as having particular potential.

David Law, global insurance leader at PWC, concludes: “The Chinese market is still underinsured if you compare the levels to other economies, so people still see it as an opportunity. But the question is will European insurers be able to find partners to grow market share or will it continue to be dominated by the large Chinese insurers that still believe there are growth opportunities in the domestic market?”

This article was published in the 3 October edition of Post magazine 

  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: