Dagong Europe has published a commentary entitled Top 5 Europe Based Multiline Insurance Groups: Performance and Outlook. The new commentary analyses credit characteristics, the latest performance and trends of the top five composite insurance groups by premium volumes based in Europe, namely AXA, Allianz, Generali, Aviva and Zurich. The report looks at the peer group on aggregate basis to assess overall characteristics and trends and to lesser extent on individual basis, mainly to understand and explain the underlying drivers.
“Though volatile, we consider the peer group’s operating environment as strong based on strong core operating markets.” says Linas Grigaliunas, Director of financial institution at Dagong Europe. “We consider its business profile to be very strong and robust, helped by large scale, well established operations and high degree of diversification. We see financial profile as very strong and resilient, based on high level of capitalisation and strong although weakening profitability, liquid and high credit quality investment portfolio.”
“In 2015 the peer group showed strong profitability in currently difficult environment with return on equity on average at 8.5%. 1H 2016 results show signs of weakening compared with last year. We expect the rest of 2016 and 2017 to be challenging for the top five European multiline players, but we also expect them to continue outperform the industry.” adds Linas Grigaliunas.
Outlook for the peer group:
- Operating environment: We expect headwinds from financial markets volatility and geopolitical uncertainty to persist. We expect a negative impact of Brexit to European and UK economy, however scale and impact are uncertain. We consider the regulations would not only strengthen the development of the industry, but continue to present some of the major challenges at the same time.
- Growth: We expect to see slowdown in premium growth of the peer group in 2016-2017 growing 2.5% and 3.1% respectively, as companies focus on restructuring their Life portfolios, making them less capital intense and less sensitive to interest rate volatility and on improving underwriting profitability for Non-Life in an increasingly competitive environment. We expect growth to improve slightly in 2017 as companies adjust to the new environment.
- Profitability: We expect profitability to remain flat or decrease slightly on average in 2016, as interest rates continue to slide and we do not expect gains from one offs and realised investment as high as those in 2015. However, we expect improved technical profitability and lower costs over medium-term, which will lead to improved technical profitability in 2017. We estimate average return on equity to be below 8% and return on assets at around 0.7% in 2016 – 2017.
- Capitalisation: We expect capitalisation to remain very strong, however, more volatile on the regulatory Solvency II (SII) basis. We expect further optimisation and improvements of the internal model and capital generation via shifting product mix to capital-light products, divesting non-core operations, revising investment mix, reducing A&L mismatch, and optimising reinsurance strategies. Nevertheless, long-term capital level will depend on companies’ risk appetites and dividend pay-out levels.