EU insurance firms expand their business world-wide

Date: 24/06/1999

By Bruce Barnard
EUROPE'S insurers are keeping pace with their banking counterparts, with giant mergers and alliances and foreign forays a staple part of their daily diet.

Moreover, Europe boasts companies with stellar track records like Germany's Allianz group, Italy's Generali, the Dutch Aegon group and Axa of France, which are challenging their US rivals in the race for global reach.

Hardly a week passes without an announcement of a bumper cross-border European or transatlantic transaction. And the deals are getting bigger. Aegon set a new record in the spring with its €9.4-billion acquisition of San Francisco-based Transamerica Corp, which transformed it into the US' third-largest life insurer and the world's third-largest insurance firm by capitalisation behind American International Group and Allianz.

In a significant development, Europe's insurers are now swooping on Asia led by Allianz, which recently agreed to take a controlling stake in First Life Insurance, South Korea's fourth-largest life insurer, and snapped up two companies in Taiwan.

With large shareholdings in blue chip firms, insurers have also become key players in the consolidation sweeping through European industry. AXA chairman Claude Bebear is one of the most powerful figures in French business because his group is a shareholder in Paribas and Banque Nationale de Paris, whose €36-billion hostile bid for Paribas and Société Générale has convulsed the country's corporate establishment.

Yet while Europe's insurers are bestriding the global stage, they have failed to create a significant pan-European presence. Aegon believes there is limited scope for an integrated European market in insurance and pension funds, even with a single currency topping up the single market, due to linguistic, cultural, fiscal and legal differences in the euro zone. Most products are largely tax-driven and there is little chance that Union governments will surrender their tax-raising powers.

The fact that Allianz bought the French insurer AGF shows that it believed it had to acquire a local firm in order to do business in France, rather than selling policies from Germany. Kees Storm, the chairman of Aegon, cannot imagine any French person buying an insurance policy in Germany.

Some EU national markets are virtually impenetrable to outsiders. The deregulation of the German market in 1994 to comply with EU directives made hardly any impact, with premiums actually rising as companies used the strong balance sheets and big reserves encouraged by the previous regulatory regime to stick to their old ways. Consolidation is finally on the agenda, but there are still more than 2,000 insurers in the Union's largest market.

The European Commission has not, however, given up hope of creating a genuine, functioning single market in financial services.

Acting Financial Services Commissioner Mario Monti's action plan to free up the insurance market aims to remove the obstacles preventing insurers from selling their products throughout the EU, such as the widely differing interpretations by national regulators of the measures required to safeguard the 'general good'.

Key points in the plan include calls for an EU-wide definition of the general good, a review of current Union rules on the solvency of insurance companies, and agreement on a proposed directive to govern the winding up of insurers.

Monti also wants the EU to start considering now how to respond to the fact that state budgets will soon be unable to fund the pensions of the growing proportion of retired people in the population.

Article forms part of a survey 'Financial Services'.