Improving expectations
Looking back, the first 3Y tender by the ECB last December proved to be the catalyst for a general improvement in economic expectations. The spreads of Italian and Spanish government bonds have decreased substantially relative to German government bonds in the year to date thanks to the ECB’s liquidity operations. This ensured the refinancing of the large bond volumes of the two countries in the 1st quarter of 2012. Whereas macroeconomic data continued to reflect the currently cautious economic activity, the leading indicators in the euro zone started to turn in a positive direction towards the end of 2011 – a development that was reflected on the financial markets. The stock markets got off to an excellent start to the New Year, thereby anticipating the upswing in the euro zone, which should manifest itself in economic data in the 2nd half of 2012. Positive economic surprises outnumbered the negative ones, with particular highlights including the robust US economy and China surpassing expectations.
The current outlook, i.e. a short recession in the euro zone followed by an economic upswing in the 2nd half of 2012, is counteracted by numerous risk factors. These currently include political risks in particular. The reform process on a national scale in the European peripheral states as well as at a supranational level in the euro zone must be completed quickly and credibly. Further risks for the global economy could result from an escalation in the Iran conflict and a drastic increase in the price of oil, as well as from a real estate crisis in China.
Austrian insurance industry records decline in premiums
The Austrian insurance industry saw a deterioration in premiums in 2011. Premiums declined by 1.7 per cent to € 16.5 billion. Total insurance benefits amounted to € 12.3 billion in 2011, up 4.4 per cent on 2010. According to initial forecasts, total premium revenues are expected to increase again by around 1.3 per cent to € 16.7 billion in 2012.
Life insurance premium revenues fell by 7.5 per cent to a total of € 7.0 billion in 2011. Recurring premiums rose by 1.6 per cent to an aggregate volume of € 5.6 billion. The sector recorded a robust increase in reduced-premium old-age provision, with contracts rising by 5.4 per cent and premiums up around € 1.0 billion (plus 4.8 per cent). At € 1.4 billion, single premiums were down 32.2 per cent.
Premiums in the private health insurance segment increased by 3.6 per cent to € 1.7 billion. The Austrian Insurance Association expects total premium revenues to grow by 3.2 per cent to € 1.8 billion in 2012. In the area property and casualty insurance (including motor vehicle third party liability), premiums also increased by 2.9 per cent to € 7.8 billion, whereas benefits declined to € 4.9 billion; according to the Association, this was exclusively due to the absence of any major natural disasters. However, the overall trend was upwards. In 2012, premium revenues are expected to rise by 2.5 per cent to € 8.0 billion.
Rising need for insurance services in Central and Eastern Europe
The unfavourable economic framework also affected the development of the growth markets of Central and Eastern Europe due to their close economic links. Economists expect GDP in the CEE region to increase by around 2 per cent in 2012 (2011: plus 3.4 per cent), with noticeably better economic performance in the 2nd half of the year. An increased GDP growth rate of above 3 per cent is forecast for 2013 and beyond, meaning that CEE will remain the growth engine for Europe in the coming years.
Closely tied in with this economic development, wages and private consumption are also expected to increase over the coming years. Growing purchasing power and a rise in the standard of living also means a sustainable increase in the need for insurance services on the CEE insurance markets, which can be seen in the continued outperformance of the growth rates in these markets relative to Western Europe. Insurance density (i.e. the volume of premium payments per capita) in the CEE region clearly falls short of Western European levels, thereby indicating that there is a gap for these markets to close and that this development will continue.
