Magazine article Risk Management

Companies Hone Their Survival Skills

Magazine article Risk Management

Companies Hone Their Survival Skills

Article excerpt

Europeans talk about insurers' opportunities in the new free market, chances are they will say that Americans have missed the boat. But have they really? Perhaps U.S. insurers have been smart. In fact, a recent report by Arthur Andersen, which surveyed 420 senior executives in 15 countries, reveals deep skepticism regarding insurers' benefits in the single European market.

Respondents said they believe that clients will fair well, but with so many institutions ready and willing to sell insurance, the benefits to traditional insurers are less visible.

For most companies, access to new markets via acquisitions is too expensive, and it is well known that the benefits of a merger or joint venture can be slow. Consequently, the single European market promises little for insurers other than more competition at home and limited opportunities in other European Community countries.

Insurance executives in Europe see little threat from companies outside Europe. They know that U.S. companies have constraining pressures from shareholders and the stock market, and the high prices European companies could command would dilute returns. In addition, there is no sign of Japanese companies making acquisitions in Europe because of their aversion to hostile bids and of the impending deregulation of Japan's own financial markets where Japanese banks and insurers will compete head-on.

Nevertheless, there is a window of opportunity for the United States and japan. As competition intensifies in the early 1990s, the shakeout will force more insurers to face a market of falling prices. Most respondents said they believe that the United States and Japan may then become more active in acquiring European insurers. Until then, however, many European insurers will change ownership over the next few years, with most of the purchases being made by the Europeans themselves.

Cause for Alarm The findings of the study should cause alarm in the United Kingdom, the traditional home of insurance, which is under a takeover threat. Many companies with household names will fall into the hands of foreign ownership, insurance executives contend. The report predicts that by 1995 foreign companies will have a 50 percent share of the U.K. property and casualty market and 26 percent of the life and pensions market. The number of life and pensions companies, accounting for 80 percent of premiums in the United Kingdom, is forecasted to drop from 50 to 29. …

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