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Keeping Up With The Market – April 2023

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Every month, we help you keep up with the Belgian and Luxembourg insurance markets.

  1. Mergers and acquisitions
  2. Product
  3. Results
  4. Market
  5. Legislation

 

Mergers and acquisitions

La Carac acquires Ageas France

While we announced in March that La Carac was in exclusive negotiations with Ageas for the acquisition of its French subsidiary, the final decision has been taken: it is indeed the mutual insurance La Carac that acquires Ageas France, which includes Ageas Retraite, Ageas Patrimoine and Sivaconline. Ageas’ life and pension activities amount to a profit of €6.1 million.

This acquisition will have an impact on Ageas’ Solvency II ratio with a 9% increase. The acquisition is expected to close in the third quarter of 2023.

 

Product

easyLIFE Invest for Future- investissement responsable avec LALUXLalux launches a new product

EasyLIFE Invest for Future is the name of the investment product launched by the Luxembourg insurance company Lalux. Thanks to its different formulas, this product is adapted to each type of investor and his propensity for risk. Thus, investment funds and guaranteed capital are available.

Moreover, Lalux specifically states that its product meets ESG criteria.

 

Results

 

Ethias’ annual results

For the year 2022, Ethias reported a stable net result compared to the previous period, amounting to €191 million.

On the one hand, the operating result fell in non-life (€169 million) and rose by 4% in life (€75 million). On the other hand, premium income increased by 5%. More precisely, non-life premium income reached € 1,512 million (+8%) and life premium income reached € 1,402 million (+2%).

The Solvency II ratio is 170% due to the economic situation.

 

KBC and the impact of IFRS 17 on results

IFRS 17, which came into effect for reporting at the beginning of this year, has had an impact on the income statements of the bancassurer KBC Group. Insurance income, financial insurance income and expenses, and insurance services expenses are all affected by IFRS 17. Specifically, total income is 11.15 billion euros (then estimated at 9.4 billion euros under IFRS 4) and operating expenses are estimated at 4.75 billion euros ( reported at 4.4 billion under IFRS 4).

 

The Luxembourg insurance sector in figures

Despite a bounce-back period in 2021, the year 2022 recorded an overall premium income of 40.2 billion, a decrease of 4.3%.

In particular, the 15.7% increase in non-life inflows could not balance out the 16.3% decline in life inflows.

Non-life premium income has been rising steadily since 2018, thanks in particular to international business. Indeed, it has increased by 12.1 billion in 5 years. Locally, non-life business is still growing by 7%, reaching 1.2 billion. Motor and property insurance are the main sources of this increase.

While most of the market’s life premium income comes from the EU, local life premium income decreased by 20% to 1.6 billion.

 

OneLife results

When publishing its results, the life insurer OneLife reported that 2022 was a very successful year. Indeed, the net result reached 16.9 million euros, an increase of 20%.

In addition, the insurer’s inflow of funds also increased, by 30%, to 1.4 billion euros. This increase is proof that the Luxembourg insurer is gaining a foothold in the Belgian and French markets.

According to OneLife’s CEO, Elio Fratini, “These results are the fruit of the H24 strategic plan deployed over the past two years to stimulate and diversify our European distribution by focusing on efficiency, support and innovation.

 

Cardif Lux Vie results

The Luxembourg insurer Cardif Lux Vie announced a lower net turnover, reaching €2.7 billion, compared to €3.4 billion in 2021. Its net profit after tax is €47.1 million, a decrease of 5.8%. The insurer also saw a decline in its assets under management to €29.3 billion.

Nationally, business amounted to 100.5 million euros, with a 34% increase in investment savings.

 

Market

 
Overview of Belgian UCIs

The FSMA has published the key figures for Belgian Undertaking for Collective Investment (UCI) for the fourth quarter of 2022.

The first key figure is the increase in the number of so-called sustainable funds. Indeed, the latter represents 73% of the sector, compared to only 60% a year earlier.

Secondly, mixed funds underwritings amount to €2.3 billion, compared to €500 million for pension funds.

Finally, the total net assets of UCIs decreased by 13.2% to €184.4 billion (2021: €212 billion).  This decrease is explained in particular by the fluctuation of the financial markets.

Overall, the volume of underwritings decreased in 2022, although it remains positive (€5.4 billion).

 

The NBB publishes a charter on sustainable and responsible investment

The NBB continues its path toward sustainability by publishing its charter on sustainable and responsible investment. This charter constitutes a framework for the management of the Bank’s own reserves.

Considered as the final objective of its strategic asset allocation policy, this charter aims to provide a framework for the management of portfolios that are not subject to monetary policy. To this end, it gathers internationally recommended information.

In addition, the bank will publish an annual report on the climatic impact of its assets. Finally, the bank will be transparent about the impact of climate risk on its portfolios.

 

Financial behaviour of households

The NBB has published key figures on the financial behaviour of households. Households saw their assets decrease by €78.2 billion, mainly due to the rise in interest rates. More specifically, the value of insurance products lost €55.4 billion, impacting the valuation of life insurance reserves.

With regard to the behaviour of households, they sold their products, resulting in a drop of €5.2 billion. On the other hand, investment funds and listed shares are still attractive to households, with 10.9 billion and 3.4 billion euros respectively invested.

 
Car insurance will need to adapt

According to Capgemini’s P&C insurance survey, the rise of shared and electric vehicles and multi-modal transport solutions means that insurers will have to adapt, taking into account these new practices in their insurance policies. In particular, the risk of hacking for connected cars and the higher repair costs of electric cars are crucial points of attention for the sector. However, the insurers surveyed believe that their technological capacity and expertise will not be sufficient to meet the mobility requirements in their policies.

 

Moody’s’ outlook for the Belgian market

Moody’s rating agency states that the outlook for the Belgian life insurance market is stable.

The decrease in guaranteed returns and the increase in interest rates should benefit insurers, who should have better investment margins this year. In addition, unit-linked policies will continue to be preferred.

According to the agency, this outlook would reduce inflation on insurers’ expenses.

 

No split for EY

The planned demerger of EY’s consulting and auditing activities will not take place after all. The main reason for this is the unwillingness of the group’s American entity to carry out the demerger plan, in particular, because of the tax consulting business, which overlaps with the consulting and auditing business.

Other reasons for the decision were that the consulting business had become less attractive financially in recent times and that the debt for this business had increased due to rising interest rates.

As a result, possible rotations of staff and local divisions may take place.

 

AG Insurance is the most attractive employer

According to a survey released by Randstad, AG Insurance would be the most attractive insurance when it comes to employment. AG Insurance is also part of the top 50 including all sectors. In addition, the “job security”, the “attractive salary and social benefits” and a “good work/life balance” within AG are ranked in the top 3 at sector level.

Jan Heyvaert - CHRSO - Chief Human Resources and Sustainability Officer - AG Insurance | LinkedIn

 

The joint paper of the EBC and the EIOPA concerning climate-related claims

Climate risk is in the spotlight of the EIOPA and the ECB. Indeed, the organisations recently published a joint discussion paper which describes the lack of cover for claims stemming from climatic events within the EU. In this paper, the EIOPA and the ECB give suggestions on how to better insure households and businesses against climate-related natural catastrophes such as floods or wildfires.

According to the EIOPA, only about one-quarter of all climate-related catastrophe losses in the European Union are insured. Petra Hielkema, Chairperson of the EIOPA stated that: “In order to efficiently protect our society, we need to address the concern of the increasing insurance protection gap by proposing and finding appropriate solutions.”

 

Legislation

 
Group insurance in the spotlight

The Minister for Pensions, Karine Lalieux, aims to tax the capital paid out under group insurance. More specifically, capital:

  • over €679,500 will be taxed at 33%,
  • between €478,130 and €679,500 at 25%,
  • between €319,391 and €478,130 at 20%.
 
A bill to easily change insurers

A bill will soon be implemented to allow policyholders to change easily of insurers. Indeed, the Chamber’s economic commission has approved the socialist parties’ project, which aims to allow policyholders to change their insurance policy immediately after one year within the same insurer, free of charge.

This project is a reaction to the major competitive pressure in the European market, since the possibility of canceling one’s contract after one year is already in force in our neighbouring countries.

Measures are planned to facilitate this change. The new insurer will also take care of the cancellation procedures for the policyholder in the case of liability and car insurance.

 

 

Sources:

Climate change: its consequences for the insurance industry

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Climate change : its consequences for the insurance industry

The climate change has been well proven in recent years. However, the recent spate of disastrous climatic events that insurers and reinsurers have had to deal with has demonstrated the importance of considering climate change and its risk to the sector.

Enemy number one: risk

Indeed, more and more climatic events such as major droughts, fires or floods have occurred in recent months. These events (which are expected to cost 2.4 billion euros in Belgium, Source: Assuralia) have had major consequences for P&C insurance, particularly with the increase in claims and their severity. But the consequences do not cease there. Climate change and the importance of the ecological transition, which are at the heart of political and economic discourse, also have consequences for both asset and liability management. This ecological transition affects the transition, physical and liability risks and drives down the value of assets. In addition, climate risk has consequences for modelling liabilities related to morbidity, longevity and mortality risks. These observations highlight the importance of integrating climate risk into the ERM of insurance companies, as well as implementing risk mitigation techniques.

Regulatory requirements

Taking this risk into account is essential for insurers, but they must also follow the regulations. Indeed, the ecological transition is also part of the various rules to which the insurance sector is subject, regardless of the level at which each player is operating.

The IDD (Insurance Distribution Directive) requires, for instance, that insurance products distributors take into account customers’ preferences regarding sustainability and ecological impact. The situation is similar with MiFID II (Markets in Financial Instruments Directive), which requires investment awareness.

In addition, local laws, such as the implementation of the Loi Pacte in France, are also having an impact on this market. For example, the Loi Pacte introduces a fundamental need for transparency towards customers regarding the ecological dimension of life insurance products, in the context of the launch of the Plan Epargne Retraite (PER). Moreover, the energy-climate law requires companies to establish extra-financial reporting to communicate effectively and transparently on the company’s ESG principles.

At European level, sustainability risks, which take into account environmental, social or governance issues, also influence the Solvency II framework, especially its first and third pillars. In the course of this year, adjustments to the SCR and MCR calculations will be made.

Besides regulation, some major players in the sector have taken part in various initiatives, such as the Principles for Responsible Investment, to provide carbon neutral investments. All of this shows that the sector is already well aware of the environmental issue. However, there are still areas that need to be addressed in order to make the insurance sector greener.

 

What is already being done

Green investments

Making your investments carbon neutral from an anthropogenic perspective is one of the actions you can take as part of a sustainable investment strategy. Sustainable investments do not stop there. Indeed, European regulations require transparency for insurers who invest their assets in more sustainable projects. In France, Article 29 of the Energy and Climate Law requires extra-financial reporting on the respect of ESG criteria in the investment policy.

Products customized to the customer’s sustainability preferences

Aside from the sustainable nature of investments, taking sustainability into account in the development of products and in the offer to customers has recently become a regulatory development. A first point to focus on in order to progress towards this practice, and which is recommended by the regulator in particular, is to take into account the opinion of the clients who will buy the products. This seems to be an obvious point, but if this aspect is increasingly emphasized, it is a crucial point of attention for insurance companies and distributors.

In the European market, products with ESG characteristics are already on sale, including life, savings and pension products, and home insurance. However, it is not always clear to consumers how sustainable these products are. Indeed, the report on consumer habits published by EIOPA underlines that 75% of the consumers surveyed cannot determine whether a product is really sustainable because of the overly complicated documentation. Moreover, 64% of them believe that this type of product is part of the greenwashing trend.  In order to move even further in this direction, while being fully transparent to the customer, management indicators regarding sustainability can be implemented.

Globally, climate concern that affects the sector implies that products development and their specificities need to meet customers, companies, vulnerable people, regulators and governments needs. It is therefore necessary to adopt a sufficiently global and strategic vision to combine these various interests. This need for ESG transparency stems in particular from the SFDR (Sustainable Finance Disclosure Regulation), which has been partially implemented since 2021.

Solvency

As mentioned above, climate risks and challenges impact the solvency of insurance companies, in addition to other areas. More specifically, the integration of short- and long-term climate risk into the ORSA report is expected to become increasingly common practice within the sector. The amendment to the Solvency 2 regulation also came into force in August 2022.

On the other hand, it is clear that insurers need to take these risks into account in the tools used to model their solvency. Loss projections should provide a clear perspective on the new risks to be faced and their relationship to traditional risks and a view of the company’s capital through stress testing. However, the difficulty lies in the short term in the low visibility of the impacts for some actors and may lead to not assessing climate risk in the ORSA. Therefore, EIOPA suggests that insurers should anticipate the impacts of all types of long-term risks, which are almost immutable, and build the trajectory to integrate these risks into their models, at least to overcome the lack of data in this respect.

An opportunity for the sector to grow

The ecological transition, strongly encouraged by the authorities, can allow the insurance sector to develop. In particular, the climate crisis has allowed new markets to develop, e.g. the carbon market. In this case, insurance companies could help this type of market to develop, especially as they could be expected to offer insurance cover as investment in the technologies used in this type of market increases.

In addition to this, insurance companies have a key advisory role to play in helping their clients to reduce their exposure to climate risk and also to reduce losses from such catastrophes. By further increasing knowledge of this risk and managing it, the sector would have an entry point to grow and offer a risk engineering consultancy service. This could include advice on construction, or after a disaster, advising on a less vulnerable location for reconstruction. This is all the more useful and necessary when market players themselves say that areas are uninsured because the cost of doing so is too high and the policyholders are less well protected.

Obviously, climate risk has consequences for insurers and reinsurers and thus for the actuarial profession. Therefore, this issue should also be seen as an opportunity, for example to develop forward-looking risk models for physical assets. Furthermore, this change implies considering these impacts beyond the financial aspect. Indeed, although there are recommendations and rules imposed by regulators on different aspects (pricing, reserving, product development, etc.), it is wise to adapt one’s work by perceiving the phenomenon as a whole and integrating the impacts of the phenomenon on each element involved. For example, by reviewing the adaptability of models to climate risk using a systems thinking approach.

This change of approach, made necessary by the increasing prevalence of climate risk, also means that new products that promote innovative solutions can be created and that they can be priced in line with environmental interests.

Generally speaking, implementing climate risks into models and taking it into account in insurance policies are two actions that are necessary for the proper development of the sector. It is true that a lack of data can hinder development, but given the many and varied effects of climate change, adapting one’s assumptions now to advise insurance companies on financing, investment and product development is essential.

 

Sources:

Institut des actuaires, L’actuaire, acteur clé de la transition climatique

Quelles stratégies de rebond pour l’assurance vie avec la loi Pacte et la finance durable? (Analyse)

L’Investissement Durable et les Assureurs

Comment les assureurs vont verdir leurs offres

Pourquoi les assureurs accordent-ils autant d’importance à la durabilité

Time to adapt

How P&C insurers can protect and power our journey to a more sustainable world

An Actuarial Perspective

Playing our part: actuaries on a sustainable journey

Importance of climate-related risks for actuaries

Capturing the climate opportunity in insurance

La gouvernance des risques liés au changement climatique dans le secteur de l’assurance

Risque climatique – L’appréhender en pratique dans l’assurance

L’institut des actuaires – Quel rôle pour l’actuaire face aux risques climatiques ?

Changement climatique : quand le risque devient incalculable, et le sinistre ingérable

 

Keeping Up With The Market – March 2023

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Every month, we help you keep up with the Belgian and Luxembourg insurance markets.

  1. Mergers and acquisitions
  2. Partnership
  3. Results
  4. Market

 

Mergers and acquisitions

Exclusive negotiations for the French activities of Ageas

In mid-March, we learned that Ageas was in exclusive negotiations with Mutuelle Epargne Retraite Prévoyance Carac for the acquisition of its French activities (Ageas France, Ageas Retraite, Ageas Patrimoine and Sicavonline), which represent a net profit of 6,1 million euros.

Initially, there were four potential candidates but Carac finally won the race. For Ageas, the aim of the sale is to focus on the group’s core markets.

For the next step, the French personnel representatives will be consulted.

 

Foyer to acquire Globality

In Luxembourg, the insurer Foyer has purchased 100% of the shares held by ERGO in Globality.

With this purchase, Foyer wishes to “strengthen its position in international health insurance”. Indeed, Globality is an international health insurer and reinsurer specialized in insurance for expatriates.

To this end, Foyer has established a partnership with ERGO, in particular to integrate Foyer Global Health’s products and international private medical insurance into ERGO’s international distribution network.

Globality Health Yougenio | Expat Insurances

Partnership

Belfius Insurance’s Jaimy platform, which brings together the bancassurer’s customers wishing to carry out construction work with professionals, has been extended to the Dutch market.

Indeed, Belfius Insurance has joined forces with the Dutch insurer a.s.r to create Fixxer, the platform’s new name in the Netherlands. Belfius holds a 50% stake in this digital platform.

Additionally, the platform also offers a solution for customers with a damage insurance policy who want to carry out work after a loss. Customers can contact a professional directly via the platform. The Dutch insurer a.s.r. was particularly pleased with this service.

Last year, more than 36,000 construction projects were completed using the Jaimy platform.

 

Results

 

Belgian insurance sector

Assuralia has published a report on the insurance sector in 2022. In total, the sector collected more than 30,5 billion euros, an increase of 2% compared to the previous year.

The life insurance sector saw an increase in premium income of 4.8% (€6 billion) for branch 21 insurance, while the latter saw a decrease in 2021. However, branch 23 insurance was affected by the stock market. Premium income fell by 10% (€3.4 billion).

In non-life, premium income remained stable compared to 2021 (€14.5 billion). Although premium income in the fire segment increased by 8%, the combined ratio is 125%, which means a decrease in profitability.

More information on results here.

Belfius Insurance

Earlier this month, Belfius Insurance published its annual results. Despite the fact that the non-life insurance activity was affected by many factors such as inflation and climatic events, Belfius underlines an increase of 4.7% of its non-life premiums. Life premiums also increased by 7.6%, a rise explained by new insurance policies taken out in branch 21. However, life reserves decreased by 3.8%, due to the negative market impact on branch 23 products.

In addition, Belfius also announced the end of its Corona Direct brand. The activities of the brand will be integrated into Belfius Insurance.

 
Baloise

Earlier this month, the insurer Baloise published its annual results. The company recorded a profit of €713.9 million at group level. Non-life premium volume decreased slightly to €4.017 million.

Regarding Belgian non-life gross premiums, in local currency, the premium volume showed a slight increase of 0.7%.  In Luxembourg, the volume increased by 2.7%.

The Belgian life premium volume rose sharply by 11.2%. In Luxembourg, the volume decreased to €67.7 million (in 2021, the volume was € 75.4 million).

You can find more information on the annual results in the press release.

 
National Bank of Belgium

The National Bank of Belgium recently published its results for the year 2022 and recorded a loss of €580 million. This remains below the forecast given by the latter.

This loss is unsurprisingly due to the rise in interest rates. Indeed, the bank spent more money because of the deposit rate set by the ECB and paid more interest while the assets did not have a high return.

Moreover, the bank expects a loss of €10.8 billion over a 5-year period if interest rates continue to rise.

 

Market

End of long-term savings

Minister of Finance Vincent Van Peteghem wants to eliminate long-term savings by 2024 in his tax reform bill. One of his objectives is to remove the tax advantage linked to this product. Indeed, by opting for long-term savings, investors benefit from a tax reduction of 30%.

Assuralia has commented on the proposal to remove this tax advantage and says it finds this choice “regrettable”.

 
Belfius and its Corporate ESG Ambition project

In order to support its corporate clients on the journey towards climate neutrality, Belfius has launched the Corporate ESG Ambition project.

This project is based on the fact that 33% of SMEs have not yet decided on sustainable objectives to implement when faced with ESG regulations and the main reason is that they do not know where to start.

With its platform, Belfius wants to support these companies in defining their objectives, proposing concrete solutions to be implemented on the basis of previously defined priorities.

Belfius will financially reward its corporate clients who have achieved their objectives.

 
Assuralia’s figures on the attacks of 22 March 2016

According to a report published by Assuralia, a total of €65.7 million was paid out by insurance companies to the victims of the attacks of 22 March 2016. However, an amount of €60.5 million is still available as a financial reserve for insurers to pay compensation to victims under the occupational injury insurance policy.

In addition to these figures, the report also presents the insurers’ initiative to take care of the victims of an attack in the future. For example, moral damage will be compensated one year after the attack at the latest. Additionally, a single insurer will take charge of the medical expertise so that the insured does not need to consult several doctors.

 

Outstanding IT Modernization award for AG

On the occasion of the 13th edition of the Belgian Corporate IT Awards, AG won the Outstanding IT Modernization award for its replatforming project.

With this project, AG migrated a mainframe to Windows distributed servers in one weekend without loss of availability, a world first.

The award is welcomed by the insurer as a recognition after CIO Philippe Van Belle was awarded the title of CIO of the Year 2022.

 

 
 
 
 
Sources:

Keeping Up With The Market – February 2023

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Every month, we help you keep up with the Belgian and Luxembourg insurance markets.

  1. Partnership 
  2. Product 
  3. Market 
  4. Financial results 
  5. Legislation 

 

Partnership

Custodix hub

In Luxembourg, Luxhub and Vermeg, a software specialist, join forces to launch Custodix Hub. Custodix Hub is a solution created to collect data from depository banks so that life insurers can more easily organize them. (Check out their presentation) 

The main reason for this partnership is the cost of data management for life insurance companies, especially in the context of digital evolution. Indeed, data becoming increasingly sophisticated and the ability to process different formats are main factors of rise in costs.

Custodix Hub allows the automation of processes and the structuration of data coming from depository banks. These data, such as movements in securities and securities positions, are processed in specific formats, proper to banks, which makes it difficult for life insurance companies to process.

Custodix Hub, therefore, provides an opportunity to facilitate the process of a format change for insurers.

 

Product

AXA has introduced a new service as part of its group hospital insurance: a second medical opinion. This second opinion includes an online consultation with a doctor and a physical consultation in a hospital.

To request this second opinion, the policyholder will be accompanied by a personal assistant throughout the process.

This service is launched to meet the needs of policyholders who are diagnosed with a serious illness or who have to undergo a major operation. In addition, this service is a complement to the range of services offered for health insurance.

 

Market

 

AG College: new training program by AG Insurance

AG launched a new training program called AG College. The objective? Training AG’s own talent in order to meet the recruitment challenges of the market.

Concretely, the 6-months program includes technical trainings, a first evaluation after 3 months and a final evaluation. If candidates successfully pass the final evaluation, they get a permanent contract as a file administrator for car insurance or health care.

AG College, a first in the sector, has been created in partnership with the AG’s HR teams, AG Business Schools and Fopas.

 

Natural disasters: single compensation scheme to be set up

By the end of 2022, 97% of the files concerning the victims of the floods that hit Belgium in 2021 had been completed.

However, the amount of the capped intervention to which insurers have to limit themselves in order to maintain their solvency is considered insufficient. The insurers have therefore decided, in consultation with the authorities, to set up a single compensation scheme to ensure the compensation of policyholders who are victims of future natural disasters.

Hilde Vernaillen, President of Assuralia, stresses that without a single compensation scheme applicable to the whole country, it is impossible for insurers to cover the risk properly and to reinsure it at a decent price. Therefore, a harmonized system is necessary to avoid a solvency problem for insurers or higher premiums for consumers.

 

Fewer requests from motorists submitted to the Pricing Agency

This year, only 33,255 applications for motor insurance from ‘uninsurable’ motorists were submitted to the Pricing Agency, a decrease of 6.4% compared to 2021.

It is worth noting that the number of applications increases each year, but the rate of increase is lower each time.

In 2022, 24,036 contracts were agreed with insurance companies.

 

AXA’s digitalisation programme and climate commitment

AXA Belgium is a leading insurer when it comes to developing efficient digital customer experiences and its digitalization strategy does not end there. Indeed, 73% of the customer experience is digitalised and takes place on MyAXA, which has seen a 50% increase in the number of users. MyAXA allows consumers to report a claim directly via the application.

Additionally, in the context of protection against climate risks, AXA has also introduced the Eco Repair Score, a tool that defines the environmental impact of repairing damaged vehicles. In addition, the AXA Research Fund as well as the River Cleanup action and the Climate School are other tools deployed by the insurer to display its commitment to the climate.

 

Financial results

KBC

As regards its non-life insurance activity, KBC reported an amount of 204 million euros for its technical income. This amount represents an increase of 4% compared to 2021. Earned premiums remained stable compared to the previous quarter. In addition, the amount of reinsurance transferred decreased and technical expenses increased.

Regarding life insurance, technical income reached 16 million euros, an increase of 6 million compared to the previous year. The sale of life insurance products, including branch 23 products and products with a guaranteed interest rate, also increased by 34% compared to 2021.

In addition, KBC also announced its partnership with PetExpert to offer insurance for our dogs and cats.

 
Allianz Benelux

Allianz Benelux also published its results for the previous year. Its net result amounted to 217 million, an increase compared to 2021.

Non-life premium income reached 1,582 million euros, an increase of 2.4%. However, premium income on the life segment fell by 18.4% to 1,864 million euros.

The operating result of its non-life segment increased compared to 2021, reaching 185.1 million euros. On the life segment, the result also increased to 160.1 million euros, partly due to a higher investment margin.

 
Ageas

It is now Ageas‘ turn to publish its results. The Belgian insurer reports a net result of 1.01 billion, an increase of 20% compared to 2021.

This net result is explained by the purchase of the Fresh bonds and RPN(i) securities, two financial securities inherited from Fortis Bank. However, analysts advise to exclude these as they do not provide any information on the performance of Ageas’ activities. For instance, if the profits generated by the NPRs are not taken into account, the net result would be equivalent to 871 million.

On the life segment, premium income increased by 1%, driven by good results in the Asian market. The European markets showed a decline in life business.

On the non-life segment, premium income increased by 4%, reflecting growth in all markets.

 
AXA

Unlike its competitors, AXA‘s turnover increased but its net income decreased by 11%.

Indeed, its turnover reached 102.3 billion euros. However, its net income fell by 11%, due to the unfavourable situation of the financial markets. At group level, revenues for the P&C and health businesses increased by 2% and 16% respectively.

In Belgium, turnover increased by 3% to reach 3.58 billion euros. The health business in particular stood out, with a 9% increase, followed by the non-life business, which rose by 3%.

Results for life insurance stagnated, due to the change in legislation for the pension of the self-employed.

 

Legislation

The EESC opinion on a new liability regime concerning AI

As AI becomes more and more central to the activities of companies, they are more prone to damage caused by it. The European Commission has drafted a proposal for a law on this issue, on which the EESC has expressed an opinion.

Both agree not to choose no-fault liability or compulsory insurance. However, the EESC would like to provide legal certainty to encourage companies to use AI in their business. Civil liability guarantees could be called upon in this respect.

In addition, compensation for companies that incur damage due to the use of AI will not be harmonised at a national level. The EESC, supported by the social partners, civil society and consumers, is therefore awaiting a response from the Commission in this respect.

 

Draft law on fire insurance linked to a mortgage loan

In order to grant a mortgage loan, the bank often encourages its customers to take out fire insurance or an outstanding balance. This practice allows for a lower interest rate for the customers.

However, there have been complaints from customers who could not change their fire insurance to a more attractive offer from a competitor without seeing the interest rate on their loan increase.

The Minister for the Economy has proposed that this practice should stop, allowing consumers to change their fire insurance after 2 years without losing the interest rate set at the time of purchase.

 

Workmen’s compensation: new draft law

In 2021, the number of claims for workers’ compensation refused by insurance companies was 14,8%. But, if an insurance company refuses to pay a compensation, it must report this to Fedris, which may then decide to pursue an investigation.

In 2021, only 3,609 investigations were opened and 18,199 refusals were not checked.  The CD&V reports that only one-sixth of the refusals were checked by Fedris, which explains why many victims’ files were wrongly refused.

The CD&V, therefore, wants Fedris to conduct an investigation into all compensation files that have been refused by insurers. If the insurer contests, it will have to pay a fee of €100 to Fedris.

In addition, the CD&V wants victims of such accidents to be better informed. According to the political party, scheme for married couples and legal cohabitants should be harmonized and actions should be undertaken to improve vulnerable position of temporary workers.

 

Sources:

What an actuary can do to face inflation

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Estimated at 10,7% in 2022 in the Eurozone, the inflation unsurprisingly hits the European insurance market for several months. The role of actuaries at different levels, such as costs, product development, covers, evaluation of the balance sheet and measurement of capital requirements, is a key element that insurance companies need to consider to remain competitive.

Impacts of inflation on the insurance market

As many other actors, insurers do need to deal with inflation and its consequences. The decrease in purchasing power, the increase in claim costs in P&C insurance and in medical covers, and the loss of market assets are all examples of negative short-term consequences that need to be controlled. On the contrary, the rise in interest rates, for instance, provides an active return in the long term: indeed, this effect allows bonds to be redeemed at higher rates. Regarding savings products with a secured interest rate, they are advantageous for both the investor and the insurer, who can obtain a higher bond yield.

Moreover, on the mid-term, inflation increases risk awareness, influencing customers in taking out more advantageous life insurance products, such as units of account. When taking out these products, money is invested in different types of assets that will adjust to inflation, such as real estate. The insurers’ life insurance taxation framework will therefore generate increasing cash flows.

Lastly, the impacts of a changing monetary policy will have consequences on technical provisions, capital requirements and related monitoring tools. Indeed, current methods used do not estimate realistic technical provisions because they do not adapt to inflation, as these methods have not been adjusted for more than twenty years. In addition, buying life insurance policies, immediate consequence of the decrease in purchasing power and the increase in interest rates, influences these estimates.

Regarding capital requirements, it is recommended to review inflation-related parameters of internal model to meet the SCR. It should be noted that inflation also affects risk management policies and models.

Globally, we can notice that inflation influences positively and negatively the insurance market.

 

Undertaking actions at different levels

In addition to the above-mentioned consequences, the inflationary pressure urges insurers to look at their product and reserving strategies.

A concrete example concerns the competitiveness of insurance companies in relation to offered guarantees. Understanding how these guarantees are calculated and determining their level in new products will therefore be of primary importance. A solution to determine their level is to reduce underwriting risk by considering even more the policyholder’s experience, or by asking policyholders if their needs have changed and if some insurance policies can be brought together. Another solution may lie with the policyholder if he·she is willing to change insurance policies regularly.

As a result, understanding and monitoring the market as it changes is a required behavior in a future and uncertain socioeconomic context.

As far as pricing is concerned, inflation also affects projections of future premiums. The increase of claims costs and other risks (i.e. climate-related) are factors to consider. However, inflation does not influence life and non-life insurance similarly. On the non-life hand, the IABE has already noticed that some non-life insurance premiums are undervalued of 8%. Nevertheless, short-term contracts allow to adapt more easily to the influence of inflation. In this respect, inflation has a forward-looking effect. The situation is different for longer-term life insurance contracts. A new challenge is to adequately price savings products with a guaranteed interest rate to yield a return on invested premiums. Inflation has therefore a retrospective effect on the life hand.

Moreover, the impact of political decisions when pricing productsshould be considered. Bruno Lemaire, French Minister of Economy, for instance, decided to limit the insurance index so that it does not increase compared to the consumer price index. However, it is necessary to be extremely careful when adapting premiums, as regulatory instances require a substantiated justification.

If we look at the solvency of insurance companies, evidence shows that inflation affects both life and non-life business. In such an inflationary context, reinsurance may be of useful help for insurers, more specifically by discussing with experts how to set up adequate reserves. Moreover, the APREF thinks that the current economic situation, and the possible stagflation, could influence prices and the scope of reinsurance cover. Therefore, there is a need for insurers to engage and interact more with reinsurers.

 

“Understanding and monitoring the market as it changes is a required behavior in a future and uncertain socioeconomic context.”

 

Opportunities available to actuaries

Although we have discussed the impacts of inflation on the industry and the associated changes to be adopted, it is needless to say that the core business of actuaries will also be subject to adaptations, regardless of the degree of implication in the value chain.

With the increase in costs of claims coming from the rise in raw materials and automobile parts, it matters to reconsider how insurers deal with claims. Actuaries working in this area may tap into other budgets and choose a new method to reprice products after inflation. The insurance company may also change its pricing policy by adopting a competitive strategy regarding what is being done in the market or simply by deciding how many product lines to increase to maintain a certain number of policyholders.

Regarding non-life pricing, it is recommended to use extrapolation techniques which already take inflation into account. Adapting previous cash flows to current inflation in models is another method that can be used. On the whole, considering past figures as good indicators of future behaviors is also interesting. Another approach consists in using the pricing of inflation swaps and index-linked bonds to better evaluate future inflation.

If we tackle the ALM strategy, another necessary step is to model inflation. Specific models can link inflation by rates. Indeed, using LMM or Vasicek models allows to model real and nominal rates in order to determine inflation. Besides, simultaneously determining real and nominal rates and inflation is also possible via autoregressive models such as Jarrow-Yildirim model. Lastly, using inflation swaps that swap fluctuating inflation for fixed inflation allows for more accurate predictions as it reduces future volatility.

Additionally, although there is an influence of inflation on liabilities, especially on products, asset coverage is still too poor. Some elements could be used as natural coverage. For instance, inflation-linked products, interest-rate products and equities with a strong pricing power could be the solution, even if these are scarce products. Concerning equities, further reflection is required as the classification of risks is not as clear as for credit risk and its financial ratings. It is therefore necessary to catch risk factors that identify  equities more prone to inflation. However, paying attention to these factors can allow for a considerable evolution and better visibility on the market in such a situation.

Lastly, a global reflection on how reserves can be increased and how this increase can be established should be encouraged. Similarly to the adaptation of insurance products premiums, reserving is a key matter to face inflation, even if inflation were to weaken.

 

“It seems natural to consider that the market will still be confronted with these conditions in the future, especially with the already evident consequences of global warming.”

 

Final words

Inflation and the economic and social chaos caused are not likely to leave us any time soon. Each actor in the financial sector must take it into account to improve the comfort of living of citizens and the perennity of companies. As an actuary, adapting his/her strategic vision and implementing changes in traditional methods used in daily work are actions that must be taken to meet these objectives.

Concretely, it seems natural to consider that the market will still be confronted with these conditions in the future, especially with the already evident consequences of global warming. Actuaries will need to deal more and more with these situations which cause rates volatility and instability on assets. This is what the European Actuarial Association remind us: “As actuaries, we have taken too much time thinking that inflation belonged to the past. After all, the history taught us that …”

 

 

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