The last twelve months have been special. How did insurers get through this unprecedented crisis?
Marc Hengen: It should be noted that there were several crises during this period marked by the current pandemic. The first of the crises is the health crisis. It was sudden and unpredictable. As employers, insurers have organised themselves to keep activities operational by resorting to teleworking. On the other hand, insurers have seen part of their customer [base] go out of business following measures to combat the effects of the pandemic.
Could you go into detail abut the different crises?
The health crisis was accompanied by a severe stock market crisis. During the first weeks of this health crisis, we saw the markets drop by 30%. This has affected the assets of insurers who must keep solvency ratios. If this ratio drops too much, the insurer must return capital. Fortunately, the situation was not that [extreme]. The good news has been the rapid recovery in financial markets, which are now in very good shape. A second aspect of this crisis was the lack of contact with customers, which had repercussions on the turnover of insurers. The Luxembourg insurance sector is very foreign-oriented, and particularly in life insurance with clients in asset management. In this niche, insurance companies recorded a 25% turnover loss compared to the previous year, which is very important even though 2019 was a very good year. The Insurance Commission identified the reasons for this decline as the inability to see people, but also the uncertainty associated with the unpredictable development of this crisis.
Now the stock markets are performing better. So are you more optimistic about the future?
For the moment, the evolution of the pandemic and the acceleration of vaccination open up better prospects and therefore better freedom of movement in the future. This will allow more serene commercial development.
At the height of this pandemic, the notion of solidarity and common sense were put forward to help people and businesses in difficulty. For example, some landlords have frozen rents. Have there been similar actions with insurers?
Each insurer relied on its agents and network to the extent possible. There were no general measures or decisions. Decisions were made on a case-by-case basis depending on the situation of each client, so there was no coordination on this subject at the level of the [ACA].
Besides the case-by-case relationships, how has the insurance sector played a role in helping Luxembourg get through this crisis?
Insurance companies have been diligent with customers to find solutions. But above all, the Luxembourg sector has massively participated in the subscription of the Luxembourg state bond loan at rates below 0 for certain issues. Which is a form of solidarity, because this loan was used to support state aid. Insurers have therefore played their part by taking more than €400m in bonds in the €2bn government [offering].
Is this an unprecedented practice?
It is true that bonds are very popular investment tools for insurers. But I think as massively as that, it was still a first. We encouraged our members to follow this approach to support the financial efforts needed by the country to manage and get through this crisis. And then, the Luxembourg state is a quality issuer.
Can we insure the loss of activity?
There is insurance available after a fire or a storm to cover what is called business interruption. But the pandemic is not one of those cases. The pandemic as such is uninsurable. In addition, closures are decided by the state for specific and justified reasons, [hence] the ban on the activity. A priori, the first decision is that of the government for health reasons. The pandemic is therefore not insurable.
Just like a nuclear disaster…
Not everything is insurable. Insurance is based on solidarity and redistribution. Therefore, if all policyholders are affected by a claim, this obviously cannot work, especially at the same time. So indeed, a pandemic is not insurable, just like a nuclear disaster.
With Brexit, new insurers have arrived in Luxembourg, boosting the Luxembourg sector.
Indeed, new players arrived in Luxembourg in 2017 and 2018, and the transfers of activities took place mainly in 2019. This explains the good results of the sector over this year. Likewise, newcomers have become members of ACA and our community. A whole chunk of activity has arrived in Luxembourg, especially the international non-life insurance segment. To quantify this contribution, of the €13bn in international non-life premiums, the activity contribution of newcomers accounts for three-quarters of this amount.
The newcomers arrived quickly, but aren't you worried that for one reason or another they will decide to move elsewhere in Europe?
It is always a risk in business that companies choose another location to develop their activities. But on the other hand, in recent years, we have seen more companies coming to Luxembourg. I think that the choice of Luxembourg by these companies was carefully considered as soon as the result of the referendum paving the way for Brexit. It was not a decision taken in panic. The companies in question wanted to keep their European customers.
But we could imagine that after a few years, companies in the sector finally decide to choose Frankfurt, Brussels, Paris or Amsterdam…
Absolutely, it is possible. You cannot tie up anyone in Luxembourg. But for the moment, I have very good feedback from the new arrivals on their choice of Luxembourg as a European hub. I remind you that the country's strength lies in its openness in addition to a very complete financial ecosystem that is very internationally oriented. So it's a place where several languages are spoken, but also listened to and understood.
In addition, we have a regulator, the Commissariat des Assurances, which knows how to give its full attention in addition to knowing how to regulate and monitor players in the sector.
How did the insurance industry fare in the first quarter?
I do not yet have the figures which will be communicated in a few weeks by the Commissariat aux Assurances. We will have to wait a bit. Insurers are always prudent. What is certain is that in terms of life insurance, it is rather the end of the year that is decisive in whether the year will be good or bad. What I can say is that I don't have catastrophic echoes.
You are in the process of renegotiating the collective agreement for the insurance sector, which has approximately 4,000 jobs. It is a little different from that of the banking sector and you often reach an agreement before your fellow bankers...
Indeed, the last time we found an agreement with the unions before the banking sector. These are important negotiations to keep some predictability in the industry. But we are still in negotiations, and I will not comment at this stage of the discussions.
Compared to the banking sector, the insurance sector is more stable, with fewer social plans. How do you explain it?
Yes, I think the business model is completely different. Perhaps restructuring decisions are less easily made in the insurance industry than elsewhere. I don't really have an answer, maybe we are once again more careful with a long-term view.
This article was originally published on Paperjam and has been translated and edited for Delano.