New research reveals Nordic insurers score over Europe peers
According to new research compiled by Timetric’s Insurance Intelligence Center (IIC), Nordic insurers had scored over their European peers, in terms of premium growth as well as profitability since the financial crisis.
The insurance industries in the Nordic countries of Denmark, Norway, Sweden, and Finland operate in concentrated markets characterized by strong brands and limited foreign competition. Well established distribution channels and high customer retention result in decent pricing and underwriting discipline.
In these conditions, average per capita spending on insurance in the combined Nordic area in 2010-2015 increased by more than 20%, compared to just 6.5% in the Eurozone and a decline by 1.7% in the UK.
The Nordic non-life and life insurance sectors have both deepened penetration considerably and expanded on the back of personal insurance lines, where growth was underpinned by favorable disposable household income trends.
Non-life: Profitability high but Brexit and the oil price crisis dampen the outlook
While growing their books of business, Nordic non-life insurers have operated cost efficiently: In 2015, combined ratios in the four non-life markets stood between 90% and 96%. Combined Nordic non-life premiums rose by 22.2% during 2010-2015, while incurred losses and expenses climbed 12.5% and 15% respectively.
Although favorable accident statistics and the relatively mild recent Nordic winters brought loss ratios in the largest business lines down, the main reason behind the good underwriting results is effective distribution, according to Steffen Mueller, Senior Analyst at Timetric’s Insurance Intelligence Center:
Mueller said: “Nordic insurers have strong customer relations and are selling a lot of policies direct, through their own agents, or through affiliates. Additionally, competition is not destroying value, we have not seen price wars like in other European markets. This leads to significantly lower expense ratios, and ultimately higher profitability, than we see in other European markets.”
In terms of premium growth, the Nordic non-life markets after the crisis expanded on the back of personal insurance, with growth in the motor and property lines underpinned by favorable income trends, rising numbers of registered vehicles, and a healthy residential housing market.
In commercial insurance, premiums for commercial liability – e.g. cover for professional indemnity, product and public liability, or cyber liability – soared in Norway and Sweden at compound annual growth rates (CAGRs) of over 9% since 2010. The slow economic recovery in Denmark and Finland however impacted growth in these markets.
Mueller commented: “Our analysis shows how strongly commercial liability insurance depends on GDP performance. In the light of Brexit, as GDP growth in all Nordic countries is expected to decelerate, growth in the category is likely to slow down accordingly.”
The oil price crisis has disrupted Norway’s large marine and transit insurance category, where growth has slumped since mid-2014. With the global demand for fossil fuels expected to decrease, and the Norwegian government having announced plans to diversify the country’s economy, Timetric expects further pressure on profit margins of marine and transit insurers in Norway over the next years.
Life: Uncertainty about future pensions spurs demand
On the life insurance side, life protection products have become increasingly popular in the Nordics to provide financial security for family members and cover loans. The Individual life category grew strongly across the Nordics, at 2010-2015 CAGR’s between 3.6% in Sweden and 10.1% in Norway.
This was driven by demographic trends, as the aging population has increased the customer base for life insurance. Additionally, consumer awareness about post-retirement savings and life protection products has risen, given that the demographic shift might jeopardize the Nordic pension systems as more payouts have to be financed with fewer contributors.
“There is uncertainty about the comprehensiveness of the compulsory earnings-related pensions in the future. This is a big chance for individual life insurers, but we also see that Nordic employers are increasingly considering group life insurance to distinguish themselves and provide for their employees,” Mueller comments.
The payouts of the largest pension funds in the Nordics already exceed collected premiums. The investment yields needed to stay profitable are generally under pressure because of the low interest rate environment, which is likely to persist following the Brexit vote.
“With these factors at play, the outlook for the pension business is uncertain. Pension providers could consider longevity swaps or buy-ins to deal with the rising life expectancy, and to gain planning reliability for investment strategies and asset relocation,” Mueller comments.
“This would in return provide an entry point for international reinsurers into the closed Nordic life insurance market,” he adds.
Source: Company Press Release