European Growth Champions in Insurance

European Growth Champions in Insurance

          
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European Growth Champions in Insurance

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    Insurance executives have good reason to be preoccupied with growth. Capital markets recognize that growth is a prerequisite for an insurer’s success. As a result, they reward high-growth players with above-average expectation premiums, which translate into strong TSR.

    In addition, weak growth can quickly undermine profitability, whereas strong growth can just as quickly amplify profitability. Insurers that have declining client portfolios and premiums face increasing costs per client, given their high fixed costs. More efficient processes can help alleviate some of this pressure, but there is a limit to how far an insurer can reduce its fixed costs. Ultimately, declining client portfolios and premiums will undermine profitability.

    From 2002 through 2005, four of Europe’s high-growth insurers achieved average annual TSRs that were well above the average annual TSR for all European insurers, which was 19 percent. (See Exhibit 1.) One insurer, Skandia, achieved an average annual TSR of 64 percent over this period—more than three times the European average.

    exhibit

    Insurers understand the importance of growth and the need to outperform their peers. In Western Europe, however, most insurers are competing in saturated markets, where even incremental gains in market share can prove arduous. As a result, strong growth—relative to local markets—has become more difficult for many insurers to achieve and sustain. Still, a number of European growth champions have emerged in several markets. Few of these insurers walked the same path to achieve strong growth, but many of them drew on a small set of operational levers and structural advantages.

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