Economics Put Squeeze on 2011 Results for Insurance-Banking Groups

The European sovereign debt crisis and other economic factors are showing their impact on the 2011 results of Europe's insurance and banking groups, forcing lower performance numbers on investments and banking operations.

In its 2011 results, Finland-based multiple-line insurer Sampo Group plc showed a marked slump in return on equity, with the life insurance segment dipping into negative territory as it did in 2008 as the global financial crisis came to a head. The life segment's ROE was negative 11.7% last year, compared with 36.2% in 2010. In 2008, the segment's ROE was negative 68.8%.

The group's 2011 results show that net income fell 6% to 1.04 billion euros (US$1.38 billion). But Sampo's comprehensive income shows a 352 million euro loss, compared with a 703 million euro profit a year earlier. The biggest loss-making item contributing to this figure is "available-for-sale financial assets," which swung to a 520 million euro loss from a gain of 605 million euros in 2010.

Another contributing factor to the deterioration in comprehensive income is exchange rate effects — 6 million euros on the plus side last year, compared with a positive impact of 214 million euros in 2010.

Sampo's property/casualty and group ROEs also fell sharply from 2010, but stayed in positive territory at 12.4% and 7.7%, respectively. Both of those ROEs were also negative in 2008, the only year since 2005, with the exception of last year's life figure, when any of these segments had a negative ROE.

Sampo said it is confident of good results in 2012, though the group warns that Europe's sovereign deb crisis, a "crisis of political system," a potential banking crisis and slow growth "can escalate in ways that can affect the group's activities unfavorably." This is true even though Sampo said it has no direct exposure to the European sovereign debt now under pressure and little exposure to banks outside the Nordic region.

ING Group NV, the Netherlands-based financial services and insurance group, has been planning to spin off its insurance units while paying back a government bailout bill since its banking operations were hobbled by the onset of the 2008 financial crisis.

The group reported a 15.1% rise in "underlying" net profit for 2011, but for the fourth quarter it had an underlying loss of 516 million euros. The insurance segment had an underlying loss of 1.35 billion euros, "reflecting the previously announced charge for the U.S. closed block of variable annuities assumption changes, as well as losses on hedges in place to protect regulatory capital."

The banking segment continued to feel the pain of wider financial problems, as Greek sovereign debt pulled down results in the second half of the year. ING said results were "down substantially" in the third and fourth quarters, "reflecting impairments on debt and equity securities, particularly on Greek government bonds, realized losses from selective de-risking at ING Direct, and higher risk costs."

According to ING, the full-year 2011 underlying return on IFRS-EU equity was 10% compared with 12.9% in 2010. "Impairments on Greek government bonds recorded in 2011 accounted for 1.2 percentage points of the year-on-year decline," the group said. ING's "Ambition 2015" target for return on IFRS-EU equity is 10% to 13%.

"The financial crisis spread further into the real economy, and uncertainty around the European sovereign debt crisis continued to erode confidence and amplify market volatility," said ING Chief Executive Jan Hommen in a statement. He added that economic recovery is expected to remain weak in 2012, prompting caution with regard to risk, capital and funding.

(By David Pilla, international editor, BestWeek: [email protected])