Premiums from traditional life assurance products fell an average 10 per cent in 2011, say preliminary figures from the European Insurance and Occupational Pensions Authority. By contrast, premiums from so-called unit-linked life insurance – where policyholders bear the investment risk – rose 3 per cent.
EIOPA surveyed 20 of the continent’s biggest insurers and the decline in insurers’ guarantee business was the first in three years.
The fall suggests persistently low investment returns prompt life insurers to pass investment risks from shareholders to policyholders, as they seek to sell other types of savings and investment products.
“Guarantee products are under huge pressure because government bonds yields have plummeted”, said Raghu Hariharan, insurance analyst at Citi. “There’s a disconnect with the yields available."
Guarantee products also consume a significant amount of capital. “Insurers don’t want to sell guarantee products but customers don’t want to buy unit-linked products”, Mr Hariharan said. “It’s a long process. This will not happen over night.”
But analysts expect the trend to continue. “Solvency II penalises you very heavily if you offer guarantees”, said Oliver Steel, insurance analyst at Deutsche Bank. “It forces the companies to put up extra capital."
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