EU wins Nobel Prize but it's a tough time for European insurers
A lot has been said and written about the political and economic situation in Europe. Interesting news came from Oslo last week with the Nobel Committee awarding the Peace Nobel Prize to the European Union. While I reckon that some may be right to believe that the 70-year period of peaceful time we have been experiencing in Europe since the end of World War II could have been the fruit of the European Union construction, I have my doubts that what has been true in the past decades can be verified in the future. Being Swiss and therefore not part of the European Union, I think it would be worth providing my thoughts on the topic and what it means for insurers who are about to invest in Europe today and in the near future.
Obviously there is a “BEFORE” and an “AFTER” the financial crisis and I think it is important to analyse what has changed since 2008 and the collapse of US subprime bubble, the bailout of major financial institutions including banks and insurers and the downturn in the economy experienced immediately after that.
In terms of political stability we have to admit that the situation has been pretty shaky in certain EU member countries. Actually there is a rule that applies in a majority of them: governing politicians or political parties have lost power following the financial crisis. Examples include: Spain with the defeat of the Socialist party of prime minister Zapatero, Italy with the forced resignation of Silvio Berlusconi, France with the defeat of the UMP party and president Nicolas Sarkozy, Greece with the emergence of the fragile coalition following this year’s elections. This is without saying claims from regions asking for more independence like Catalonia in Spain or Flanders in Belgium.
With regard to the economic situation, some countries parts of the Euro-zone are cause of worries. With more than 25% unemployment, Spain and Greece top this list. But what is still more worrying is not the state of their economy but its dynamic. Indeed, not only the number of unemployed people is high in these countries but the increase in unemployment is very fast. For instance the unemployment rate in Greece has been increasing at a 1% pace over the past few months. More than a debt issue, the problem faced by countries such as Spain, Greece, Portugal, Italy and to certain extend France is a lack of competitiveness and with the recession looming I fear the situation could not improve.
It is in this tough environment that insurers are planning new investments in Europe. What we have already predicted in terms of investment in new core insurance systems in the life insurance sector seems to materialize. Uncertainty seems to hit less severely the general insurance sector (property and casualty) but the industry has still to generate underwriting profits in key lines of business for instance motor insurance in France and United Kingdom. I personally think that identifying and investing in innovative business models is key to grow and generate profit in the long term in this difficult market environment and I encourage insurance companies to challenge their traditional business model.