Insurance sector fears that bad times are ahead

Cautious optimism predominates in the Greek insurance sector concerning turnover in 2005. The overall figure is expected to show a rise, although this would not be a sign of a steady upward trend. The sector’s positive attitude seems to be vindicated by data about insurance production in the January-to-September 2005 period as recently published by the Association of Insurance Companies-Greece (EAEE). Although comparison with the same period in 2004 is not possible, the figures show that during last year’s first nine months about 80 percent of the whole production of 2004 was covered. The EAEE data reveal that the rising trend seen in insurance activity refers both to the sector of general insurance and to that of life insurance; their production in last year’s first three quarters equaled 79.28 percent of the total 2004 activity in general insurance and 81.52 percent in life insurance. This shows that figures for the whole of 2005 can be expected to top those of 2004, probably by 5 to 7 percent year on year. Nevertheless, the relatively small rise in insurance production also creates skepticism, as hopes created during 2004 for a total rise in production of more than 12 percent have now been dashed. Market professionals interpret the course of production figures as a case of self-preservation in a general climate characterized by increasing lack of credibility in the insurance market. The interruption of the impressive growth rate in insurance production, which in the life sector had reached 23 percent in 2004, is being seen in the context of general mistrust in the insurance sector, which in the last couple of years has drawn the state’s interest in its aim of cleaning up the sector. Although this effort is mainly focused on the car insurance domain, the big question still concerns the life sector and a restoration of the credibility of a sector that intends to play a key role in managing citizens’ savings. The fact that the ministry’s inspections have not yet penetrated this sensitive sector creates insecurity and prevents capital from being placed in long-term commitments. Even more worrying is the current confusion over the market’s solvency levels; the state’s interest may be monopolized by the car insurance domain, but this has negative fallout in other sectors, particularly life insurance, which has yet to undergo efficient monitoring. The messages in the market regarding its security levels are clearly negative, since the generalized references in the sector’s deficits do not allow for healthy companies to stand out from the problematic ones. As a result, this does not help in creating the conditions for a dynamic rebound in insurance production similar to that seen in 2004 compared with 2003. The stagnation trend in insurance activity goes hand in hand with the lack of business news; it is no coincidence that the insurance market could be the only sector in the broader financial and credit domain that lacks business interest. Mergers, acquisitions and general restructuring all seem ruled out, although some discussions to that end have occurred from time to time. The market’s fear is none other than the «slow death» that comes with long-term stagnation: The majority of insurance companies are not a target for mergers or acquisitions, which means they are bound to end up closing. There are even people who perceive, behind the policies of the regulatory authority, a trend to marginalize those insurance firms which fail to meet the increased capital requirements. After all, they note, revoking the license of failing companies involves a painful political decision.

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