An increasing focus on delivering profits to shareholders over top-line growth is driving European insurers to favour high margin lines in order to meet return on equity (ROE) targets, says A.M. Best in a new report.

A.M. Best logoFor others, mergers and acquisition (M&A) deals represent a means of optimising portfolios whilst providing opportunities to explore expansion strategies, or improvements on their ROE levels.

“A common challenge faced by all non-life European insurers is the ability to grow, given the maturity of domestic markets,” said Tim Prince, Director of Analytics at A.M. Best.

“Insurers are therefore exploring diverse ways to expand, which include engaging in M&A, strengthening distribution channels and customer service propositions, and entering new markets.”

Analysis by A.M. Best shows that non-life European insurers have enjoyed a period of relative stability, with monetary policy, increasing domestic demand due to growing consumer and business confidence, lower unemployment rates, and credit growth, helping to stimulate economic growth rates in the region.

“Digitisation and innovation are buzzwords within the industry and it will be interesting to see whether the developments that companies are making will translate into either growth or improved profitability, added Yvette Essen, Director of Research at A.M. Best.

“A.M. Best anticipates they could potentially create advantages for larger companies which are able to embed efficiencies and realise economies of scale. Innovation could also benefit first movers and those agile enough to realise improvements and change more quickly.”

Analysis of all European insurers rated by A.M. Best shows 88% of ICR outlooks are stable, 5% positive, 5% negative and the remainder developing.

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