Best’s Market Segment Report: European Insurers’ Focus on Profitability Overrides Desire to Grow Top-Line

LONDON--(BUSINESS WIRE)-- Growth remains important to European insurers, although their primary focus tends to be on delivering returns to their shareholders and attracting good quality business, according to a new report by A.M. Best. Consequently, companies are increasingly concentrating on high margin lines and cost efficiencies in order to meet return on equity (ROE) targets.

The Best’s Market Segment Report, titled, “European Insurers’ Focus on Profitability Overrides Desire to Grow Top-Line,” notes that insurers are closely examining their portfolios, looking to use capital more efficiently and ceasing to underwrite or sell underperforming – albeit not necessarily unprofitable – classes. For some insurers, merger and acquisition (M&A) activity represent a means of optimising their portfolios and they are examining purchases where they can attain greater market presence and scale.

Tim Prince, director, analytics, said: “A common challenge faced by all non-life European insurers is the ability to grow, given the maturity of domestic markets. Insurers are therefore exploring diverse ways to expand, which include engaging in M&A, strengthening distribution channels and customer service propositions, and entering new markets.”

The report highlights a number of factors that are influencing M&A activity. It states companies engaging in deals may be exploring expansion strategies, or improvements in their ROE levels, and pursuing M&A can be a route to achieving that. Another motivation behind making an acquisition can be a company’s desire to improve its client offering, which more recently has included insurance companies purchasing service-related businesses, or technology that allows them to improve their client relationships.

Analysis shows that non-life European insurers rated by A.M. Best have generally enjoyed a period of relative stability. Monetary policy has helped stimulate economic growth rates in the region, with increasing domestic demand due to growing consumer and business confidence, lower unemployment rates, and credit growth.

Yvette Essen, director, research, said: “Digitalisation and innovation are buzz words within the industry and it will be interesting to see whether the developments that companies are making will translate into either growth or improved profitability. A.M. Best anticipates they could potentially create advantages for larger companies that are able to embed efficiencies and realise economies of scale. Innovation could also benefit first-movers and those agile enough to realise improvements and change more quickly.”

To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=277447.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

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A.M. Best

Tim Prince, +44 20 7397 0320

Director, Analytics

[email protected]

or

Yvette Essen, +44 20 7397 0322

Director, Research, Communications &

Media – Europe, Middle East & Africa

[email protected]

or

Edem Kuenyehia, +44 20 7397 0280

Director, Market Development &

Communications

[email protected]

Source: A.M. Best