Austria’s insurance industry has been in a significant consolidation phase for a number of years. In the last five years alone, the number of authorised insurance undertakings in Austria has decreased by 16% to 89. At the same time, large Austrian insurance groups remain very active in the insurance markets in Central Eastern and South Eastern Europe, with almost half of their total income from premiums being realised in this region through around 100 foreign participations in 26 countries. Despite extremely volatile financial markets and the substantial challenges posed by the low interest environment, Austrian insurance providers nonetheless have solvency quotas [1] on average (median) of 237% and continue to remain very stable. These findings have emerged from the “2017 Report on the state of Austrian Insurance Sector”, which was published today by the Austrian Financial Market Authority (FMA).
“Austria’s insurers continue to master the major challenges that they have been faced with for a number of years in a positive way,” FMA Executive Directors Helmut Ettl and Klaus Kumpfmüller remarked in summarising the report: “the changeover last year to the new Solvency II supervisory regime was handled successfully. However, climate change, continuingly increased life expectancy, the effects of the continuing prevailing low interest environment as well as the challenges presented by the digital revolution necessitate a consequent and fundamental revision of many business models,” remarked the FMA’s Executive Board.
Focus on Private Health Insurance
In addition to classical life insurance, private health insurance with an annual premium volume of approximately € 2 billion is particularly challenged by the continuing prevailing low interest environment, which is why there is a special focus on it in the report. As a result of the low interest rates, returns on investments have fallen so strongly that they are no longer able to contribute towards compensating for rising costs as a result of advances in medicine and increasing life expectancy, for which reason, it has become necessary for premiums to be increased significantly more rapidly than the rise in income. This has necessitated a redesigning of the premium structure in the insurance history as well as an additional information requirement towards the insured persons.
Moderate adaptations to investment strategy
As of 30 June 2017, Austria’s insurance companies managed assets of approximately € 131 billion. In comparison: at the same time, covered savings deposits stood at € 223 billion, while the capital invested in Austrian investment funds stood at € 178 billion. Insurance companies currently generally invest the assets entrusted to them very conservatively, with just under one quarter (€ 32 billion) invested in funds; of this amount approximately 80% is invested in Austrian funds. Compared with Europe as a whole, Austrian insurance companies relatively hold less in government bonds, but must in bonds issued by the financial sector. The proportion of government bonds in proportion to the assets under management stands at approximately 14%, compared to over 30% in the case of large European insurance undertakings. The proportion of bonds issued by the financial sector is decreasing, but nevertheless stands at around 15% in Austria, compared with only 10% in the case of large European insurance undertakings.
The investment strategy of domestic insurance undertakings has only been adapted moderately in past years despite prevailing low interest rates, with the composition of portfolios only having changed marginally. The search for investments with higher rates of return is reflected only by the reallocation of investments between the existing investment classes. Overall there is an increase in less liquid investment forms, with an increase in investments in real estate and private equity investments.
The complete study is available on the FMA website (in German only) at:
https://www.fma.gv.at/versicherungen/offenlegung/lage-der-oesterr-versicherungswirtschaft/.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-6006
+43/(0)676/882 49 516
[1] The solvency ratio is the ratio of available own funds to the solvency capital requirement. The solvency capital requirement prescribes the amount of own funds an insurance undertaking must hold in order to ensure a 0.5% probability of an incapacity to pay in the next year, or of incapacity to pay once every 200 years.