European insurers target high-margin lines, reduce cost
European insurance companies are increasingly concentrating on high-margin lines and cost efficiencies in order to meet return on equity (ROE) targets, according to AM Best.
Growth remains important to European insurers, although their primary focus tends to be on delivering returns to their shareholders and attracting good quality business the ratings agency says in a report titled “European Insurers’ Focus on Profitability Overrides Desire to Grow Top-Line”.
Insurers in Europe are closely examining their portfolios, looking to use capital more efficiently and ceasing to underwrite or sell underperforming – albeit not necessarily unprofitable – classes, the analysts note. 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, the report says.
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.
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