Europe

MACROECONOMIC SNAPSHOT
  The EU’s GDP growth slowed in 2018—the 28
    member states posted 1.9% aggregated economic
      growth, down from 2.4% in 2017. The European
        Commission has revised down the EU GDP
          growth forecast for 2019 to 1.5%.
            

Europe

MACROECONOMIC SNAPSHOT
  The EU’s GDP growth slowed in 2018—the 28
    member states posted 1.9% aggregated economic
      growth, down from 2.4% in 2017. The European
        Commission has revised down the EU GDP
          growth forecast for 2019 to 1.5%.

Europe

MACROECONOMIC SNAPSHOT
The EU’s GDP growth slowed in 2018—the 28 member states posted 1.9% aggregated economic growth, down from 2.4% in 2017. The European Commission has revised down the EU GDP growth forecast for 2019 to 1.5%.

The economic outlook for Europe is surrounded by a high level of uncertainty. Within the EU, the Brexit process remains a major factor affecting business sentiment. Elsewhere, trade tensions and growth expectations (particularly from China), which have been weighing on consumer and investor confidence for some time, have alleviated somewhat but remain a concern.



REGULATORY DEVELOPMENTS

European Commission’s Action Plan for a Greener and Cleaner Economy

In March 2018, the European Commission (EC) released its strategy for a financial system that supports the EU’s climate and sustainable development agenda. The proposals of the EC include:

i) establishing a common language for sustainable finance to define what is sustainable and identify areas where sustainable investment can make the biggest impact; ii) clarifying the duty of asset managers and institutional investors to take sustainability into account in the investment process and enhance disclosure requirements; iii) requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability; iv) enhancing transparency in corporate reporting and aligning it with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD); and v) incorporating sustainability into prudential requirements, e.g. by exploring the feasibility of recalibrating capital requirements for sustainable investments.

The Geneva Association supports the broad objectives of the EC and encourages legislation that promotes sustainability and the right incentives for climate-resilient investments. At the same time, the Association considers it important that the FSB recommendations on TCFD are retained as guiding principles for voluntary reporting.

General Data Protection Regulation

In May 2018, the General Data Protection Regulation (GDPR) came into force. It grants consumers more control over their data by reinforcing their existing rights and introducing new ones. Insurance customers, for instance, have the right to transmit their data to another insurer in a machine-readable format. They are also entitled to know whether their insurer processes their personal data and, if yes, for which purposes.

Amendments to Solvency II

In March 2019 the European Commission adopted new rules to help insurers invest in equity and private debt and provide long-term capital financing. Even though the insurance industry is well-equipped to offer long-term financing, the actual share of insurers’ investments in the real economy remains limited. As a result of the new rules, insurers will have to hold less capital for such investments and will therefore be incentivized to invest more in the real economy. These newly adopted rules amend Solvency II, the prudential framework for the insurance sector enacted in January 2016. They were part of a scheduled review for 2018, which precede a more fundamental review of the Solvency II directive in 2020.

INSURANCE MARKET TOPICS

Industry consolidation

The consolidation of Europe’s insurance industry continued in 20171. The number of insurers operating in the 34 largest markets declined by 2.5% to a total of about 3,400, with Italy and the Netherlands recording the most significant decreases of 8% and 6%, respectively. Small- and mid-sized insurers in particular remained under pressure from Solvency II and its heightened capital, risk management and disclosure requirements.

Natural catastrophes

In 2018, Europe mourned 676 victims and close to EUR 20 billion in economic losses from natural and man-made disasters, especially windstorms, flooding, cold/frost and, at the other end of the extreme, a summer heat wave2. The July–September period was one of the hottest and driest over the past seven decades and led to major agricultural losses across France, Benelux, Germany and Poland. Less than 40% of total catastrophe losses recorded in 2018 were insured3. This fact demonstrates that the natural catastrophe protection gap is a major policy and commercial challenge in Europe, too.

Brexit

The uncertainty around the modalities of the U.K. leaving the EU was one of the major priorities of U.K. and Continental European insurers writing business in each other’s markets. In the meantime, a number of companies have established local subsidiaries, for instance Lloyd’s in Brussels, to offer certainty to their clients under any scenario.

From the individual policyholder’s point of view, a no-deal Brexit would generate a host of potential challenges such as coverage gaps in motor, health and travel insurance.

Effects of monetary policy

In 2018, the European Central Bank maintained its accommodative stance as inflation stayed within its target of ‘below, but close to, 2%’. Therefore, in the EU, zero risk-free rates continued to pressurize investment income, and life insurers offering guaranteed products suffered most from the low-interest rate environment. In addition, soft underwriting markets in property & casualty kept the profitability of the industry subdued.


EMERGING TRENDS

Pensions and health insurance

Arguably the most important trend from an insurance perspective is the challenges European governments are facing in providing pensions, health insurance and other services. From 2009 to 2018, the share of government spending in EU GDP declined from 50% to 45%4. At the same time, Solvency II and related regulations have made it more difficult for insurers to write long-term business with guarantees, as the underlying capital requirements hurt the commercial viability of the business. European insurers are responding with a continued shift to unit-linked products.

Insurtech

Another trend is the increasing traction gained by European InsurTech companies. Even though European investments in InsurTech continue to trail those in North America, they doubled from 2017 to 20185. From 2014 to 2018, the share of global deals involving InsurTechs in Europe increased from less than a quarter to almost a third6. Activities mainly focus on telematics and the Internet of Things.

Cyber

As in other parts of the world, demand for cyber insurance in Europe is growing exponentially. There is an increasing awareness, including among small- and mid-size enterprises, of threats such as the loss of customer data and proprietary intellectual property or the disruption of business processes. Even though Europe accounts for about 30% of the global insurance market, its share in global cyber premiums is still marginal, making up less than 10% of the world’s total, according to market practitioners. This is set to change, however, in view of increasing internal risk management and governance requirements, as well as a more rigorous legal framework (e.g. GDPR).

  1. The European insurance industry in figures, Insurance Europe 03.2019
  2. Swiss Re ‘sigma’ 02.2019
  3. Idem
  4. The European economy since the start of the millennium, Eurostat 06.2018
  5. Fintech Global 23.01.2019
  6. Idem