In a new report, Fitch Ratings sais that prospects for Austrian insurers are closely linked to Central Eastern and Southern Eastern Europe (CESEE), as more than one-third of their premium income originates. Furthermore Austrian insurers continue to engage in M&A activity there as the region offers great growth opportunities.
With CESEE growth rates expected to exceed growth in Austria, Fitch expects the region to become even more important to Austrian insurers. However, although CESEE insurance business is generally profitable, it adds volatility to the balance sheets and earnings of Austrian insurers because CESEE countries show a relatively high sensitivity to global economic downturns.
Austrian insurers have strong capital, which protects their solvency positions from fluctuations in financial markets. Fitch views Austrian insurers as well prepared for Solvency II, the new regulatory regime for European insurers due to take effect in 2013. Insurers representing 99.9% of the Austrian market (by premium) took part in the fifth Quantitative Impact Study for Solvency II (QIS5). In aggregate, they reported a solvency ratio of 246%, well above the European average of 165%.
Although Austrian insurers reported improved earnings in 2010, driven by higher equity and bond markets and an absence of domestic natural catastrophes, their profitability remains under threat from low interest rates and pricing competition.
Austrian non-life insurers have high exposure to natural catastrophe risks. Scenario calculations by Munich Re show that despite strict limits on the insurance of residential buildings, insured losses from single cat events in Austria could exceed EUR1bn.
Notable investment risks for Austrian insurers include exposure to CESEE government bonds and banks, concentration risk related to Austrian banks, and large holdings in participations whose reported values may be at risk of postponed write-downs.
The report, entitled ‘Austrian Insurance Market Review and Prospects’, is available at the Fitch Ratings website.
Source : Fitch Ratings
