POLITICS & INSTITUTIONS - ECONOMY

Insurance regulator’s annual report

7.7% decline in insurance premium income in 2020



Thierry Flamand of Luxembourg’s insurance regulator (CAA) is not worried about the figures for 2020 and is delighted with the dynamism shown by the sector in the first quarter of 2021. Library picture: Maison Moderne

Thierry Flamand of Luxembourg’s insurance regulator (CAA) is not worried about the figures for 2020 and is delighted with the dynamism shown by the sector in the first quarter of 2021. Library picture: Maison Moderne

The 7.7% decline in premium income in the insurance sector is attributable to the pandemic, which has particularly affected the life insurance sector, which has declined by 17.7% over the year. The year 2020 ended with a 4.8% increase in premium income for non-life insurance.

Thierry Flamand, the new director general of Luxembourg’s Supervisory Authority for the Insurance Sector (CAA), is not worried about the figures for the year 2020. He believes that, although life insurance in 2020 was down on an exceptional year in 2019, it will nevertheless continue to grow at a rate in line with the historical average of the last decade. He also notes that, overall, the sum of the balance sheets has doubled in 10 years to reach €312bn euros, of which €221bn euros was in life insurance, €43bn euros in non-life insurance and €48bn euros in reinsurance. Life insurance thus remains the heavyweight of the sector with 70.91% of the total balance sheet.

This relative loss of dynamism in life insurance is due to the pandemic, which disrupted marketing activities. The Luxembourg life insurance industry mainly targets HNWIs (high net worth individuals) on a global scale. The relationship of trust is essential and this is "hard to establish without physical contact", commented Flamand.

This pause in the growth of life insurance activities is compensated by non-life insurance and reinsurance activities. A large part of the growth observed in written premiums in the non-life sector can be attributed to players previously located in London who have chosen Luxembourg as their post-Brexit base of operations. In 2020, there was renewed interest from industrial groups in Luxembourg captive reinsurance companies, which has led the CAA to analyse around ten new cases over the past 18 months.

In the first quarter of 2021, the CAA estimated that figures already seem to be returning to the historical growth levels of the last few years. In the first quarter of 2021, the increase in premiums, all classes of business combined, was 16.4% compared to the first quarter of 2020.

A cross-border market

Cross-border business continues to account for the largest share of premium income in the Luxembourg insurance and reinsurance sector: it accounts for 93.4% of total business, up 0.6% on the previous year. In 2020, their share increased in reinsurance and remained virtually stable in the other two branches, with 90.9% in non-life insurance, 93.1% in life insurance and 96.7% of reinsurance premium income, respectively.

On the profit side, there was a 3.8% increase in the profits of Luxembourg insurance and reinsurance companies, totalling €1.346bn. This is higher than the average for the last decade. This good performance can be attributed above all to non-life insurance and reinsurance. On the life insurance side, the erosion of profitability observed in recent years is continuing. The reason? Increased competition between the players. As Luxembourg insurers are remunerated on the outstanding amount and not on the new premiums written, the situation remains under control.

Employment in the insurance and reinsurance sector grew by 4% in 2020, reaching a total of 13,230 jobs at the end of the year (+537). The main contribution to growth comes from the non-life insurance sector (+439 jobs). There was also an increase of almost 3% in the number of jobs in Luxembourg in life insurance companies and a stagnation in the number of jobs in reinsurance companies.