Market Overview

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


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.
. 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

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