Brief: Austria
Brief: Austria
Business Development Market Intelligence
June 2007
www.lloyds.com/marketintelligence
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Disclaimer
"This document is intended for general information purposes only. Whilst all care has been taken to ensure the accuracy of the information Lloyd's does not accept any responsibility for any errors or omissions. Lloyd's does not accept any responsibility or liability for any loss to any person acting or refraining from action as a result of, but not limited to, any statement, fact, figure, expression of opinion or belief contained in this document".
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at-mi-2007-06-25-brief 3
KEY INFORMATION
Official name Republic of Austria Capital Vienna
Population (2007) 8.2m World rank: 93 Languages German (official nationwide), Turkish, Serbian, Croatian Area 83,870 sq km; land 98%, water 2% World rank: 115 Climate Temperate, continental, cloudy; cold winters and moderate summers business environment
GDP* (2006) USD 279.5bn World rank: 37
Real GDP growth rate (2006) 3.3%
GDP* per capita (2006) USD 35,500 World rank: 16
GDP (by sector) (2006) Agriculture: 02% Industry: 30% Services: 68%
Unemployment rate (2006) 4.9%
Public debt (2006) 63 % of GDP
Budget (2006) Revenues: USD 155.9bn Expenditures: USD 161.6bn
Industries Construction, machinery, vehicles, food, metals, chemicals, wood processing, paper, communications equipment, tourism. insurance environment
BUSINESS CLASSES (2005) Premium levels (2005) USD 10.1bn World rank: 18
(2005) PA & Healthcare* Real premium growth 1.3% 26% Property 24% Premium penetration (2005) Poland: 3.3% (= premiums as a proportion of GDP) EU 25 countries average: 3.2% Austria 2005: USD 10.1bn OECD average: 3.7% Liability 7% Motor 36% Regulator: Austrian Financial Market Authority www.fma.gv.at Miscellaneous 6% MAT 1%
* Written by non-life companies Main Industry Association: Austrian Insurance Association (VVO) www.vvo.at
LLOYD’S BUSINESS
Premium levels (2006) USD 49m Lloyd’s rank: 50
Comparable market size (2006) Egypt Lloyd’s representative None Lloyd’s is licensed to write all types of direct services business and all classes of reinsurance. Lloyd’s status However, Lloyd’s is not authorised to write establishment business. Lloyd’s agency network www.lloydsagency.com
Glossary
* GDP measured in purchasing power parity Rankings: 1 = highest rank Currency abbreviations: USD = US Dollar, GBP = British Pound Exchange rates: USD 1 = EUR 0.80 (2006); USD 1 = GBP 0.54 (2006)
For consistency, data is taken from the CIA World Factbook 2007, Sigma, AXCO, www.oanda.com and Lloyd’s
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at-mi-2007-06-25-brief Executive summary 4
Executive summary
Austria is becoming increasingly integrated with the new and potential members of the EU, both economically and through insurance. This integration is encouraging the growth of insurance companies based in Austria to spread eastwards. As such, Lloyd’s is generally only handling specialist and niche business from Austria.
Austria is seeking greater integration with the EU
A key policy of the uneasy SPÖ-ÖVP alliance is to increase linkages between Austria and the EU. This aim is being pursued through economic policies such as the partial opening of 1 Austria’s labour market to EU workers and the increasing infrastructure linkages with new and potential member states in Eastern Europe. However, Austria is still keen to protect its own interests, as clearly seen through its defence of its university quota system. Whilst the Austrian economy is relatively robust, its success is closely tied into the performance of other EU member states. Austria’s own economic growth is being driven through key drivers, including: tourism, the automotive industry, biotechnology and venture capital and private equity. However, Austria’s ageing population and the inefficiency of the government will continue to challenge economic growth in the medium term.
Austrian insurance is becoming increasingly entwined
The success of the Austrian insurance market is tied into the performance of insurance globally. This can be seen most clearly through the reaction of the market to the events of 2 9/11 and the ensuing worldwide reduction in reinsurance capacity. Moreover, as Austrian insurers continue to open operations in Eastern Europe, from which they derive up to a third of premium income, Austrian insurance is becoming increasingly interlinked with the insurance markets of Eastern Europe. Opportunities in Eastern Europe may come as a welcome relief for Austrian insurers which are suffering from increasing domestic competition due to the new Freedom of Services regulations. The Austrian non-life market is heavily influenced by motor, PA & healthcare and property, which together account for 86% of business.
Lloyd’s is a specialist and niche insurer in Austria
Lloyd’s business from Austria is fairly small, but growing quickly compared to its regional peers. Much of Lloyd’s income from Austria is centred around the Q1 renewals. Over half of 3 Lloyd’s business is property, however, even within this traditional class of business Lloyd’s is tending to focus on the specialist and niche types of insurance which are not available within the local market. The broker market within Austria is fairly diversified, but the bigger brokers for Lloyd’s tend to focus on property business.
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at-mi-2007-06-25-brief Contents 5
Contents
Executive summary 4
Business environment 6 Political overview 6 Economic overview 8 Economic challenges 12
Insurance environment 14 Regional premiums 14 Level of development 14 Country premiums 15 Business classes 15 Market players 18 Distribution 22 Factors affecting performance 23
Lloyd’s business 25 Regional premiums 25 Country premiums 25 Lloyd’s status 26 Business classes 26 Broker analysis 27
Bibliography 28
Appendix 30
Glossary
EEA European Economic Area
EU European Union
GDP Gross Domestic Product
MAT Marine, Aviation and Transit
OECD Organisation for Economic Co-operation and Development
ÖVP Austrian People’s Party
PA Personal Accident
SPÖ Social Democratic Party
Security classification: confidential
at-mi-2007-06-25-brief Business environment 6
Business environment
Political overview Austria is a federal republic. The official Head of State is the Bundespräsident (Federal President) Heinz Fischer, although this is mainly a ceremonial office.
The current The country vests its legislative power in the Federal Cabinet and the National Assembly. government is a SPÖ-ÖVP As proportional representation is used to elect the National Assembly members, there are often coalitions between parties. In October 2006 the Social Democratic Party (SPÖ) won coalition the legislative election, but needed to form a coalition with the Austrian People’s Party (ÖVP) in order to form a majority government. However, the decision to revive the grand coalition, which governed between 1987 and 2000, was not without controversy.1
Tensions persist between coalition partners Tensions persist in the A new ‘grand coalition’ government, comprising of the SPÖ and the ÖVP, entered office in January 2007 with a strong parliamentary majority. Whilst Austria has a long tradition of SPÖ-ÖVP coalition and SPÖ-ÖVP coalition governments, the current coalition followed three months of often the alliance is uneasy fractious negotiations between the two parties. Indeed, the SPÖ surrendered many of its key policies in its agreement with the ÖVP and let the ÖVP secure the most prestigious cabinet positions. Many Austrian voters now feel that the SPÖ is now less credible and a poll taken in early 2007 showed that roughly two-thirds of Austrians thought that the SPÖ had surrendered too much.2 Whilst the coalition remains stable, tensions persist and the alliance continues to be uneasy as the SPÖ attempts to stamp its authority on the coalition.
The political tensions that persist in Austria are reflected in its governance indicators. Whilst Austria marginally exceeds the OECD average on all governance indicators (with the exception of voice and accountability), Austria’s score for political stability is significantly below that of the other indicators. Nonetheless, Austria’s governance as a whole is better than 92% of countries worldwide.
CHART 1: local versus regional governance indicators3 (2005)4
Voice and accountability 100
75
Austria performs Control of corruption 50 Political stability marginally higher than 25 the OECD average on all 0 governance indicators
Rule of law Government effectiveness
Austria Regulatory quality OECD average
1 Australian Government Department of Foreign Affairs and Trade (2007) 2 Economist Intelligence Unit (2007) 3 The above chart depicts the global percentile rank on each governance indicator. Percentile rank indicates the percentage of countries worldwide that are below the rank of the selected country. 4 World Bank (2006) Security classification: confidential
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Concerns over Eurofighter contract In November 2006, before the formation of the current coalition government, the SPÖ, in co- operation with the Greens and the far-right Freedom Party, established a parliamentary committee to investigate the planned acquisition of 18 Eurofighter Typhoon military jets. The deal has been a highly contentious issue ever since the contract was agreed by the then ÖVP-led government in 2003, in the face of strong opposition from the SPÖ. The purchase is estimated at USD 2.5bn, more than Austria’s annual defence budget, and the jets are scheduled to be delivered between mid 2007 and 2009. The Eurofighter deal was one of the main stumbling blocks in the coalition talks between the SPÖ and the ÖVP. The former is keen to cancel the deal whilst the ÖVP remains strongly supportive of the project.5
Initial investigations Whilst the parliamentary commission’s investigation is still in its infancy, initial investigations into the Eurofighter have suggested evidence of corruption, which has raised serious concerns about the deal. However, so far there has been little discussion of alternatives to the Eurofighter contract in deal show evidence of the event that the original deal is cancelled or substantially amended. The new coalition corruption agreement specifies the need for the country to retain sufficient military capability with which to defend its airspace, thus a solution needs to be found.
Key government polices A number of the coalition government’s key policies aim to increase linkages with the European Union (EU), particularly the new and potential member states in Eastern Europe. Whilst pursuing its aim of greater integration with the EU, however, Austria is cautious to protect its own interests and on certain issues this strategy causes conflict with the aims of the EU as a whole.
Relations with EU member states There is unlikely to be a shift in foreign policy under the new coalition government, reflecting the fact that in recent years the two parties have moved closer on some major issues, such as: EU enlargement and immigration. Austria has been an EU member state since 1995 and held the rotating EU presidency in the first half of 2006. The government continues to build good relations with the newer EU members and supports the expansion of the EU into the western Balkans, including the accession of Romania, Bulgaria and Croatia. However, there is widespread opposition in Austria to Turkey’s membership of the EU and Austria has called for a tailored partnership between Turkey and the EU. 6
Partially open labour market Austria aims to increase In March 2007 the Austrian government agreed to the partial opening of the Austrian labour linkages with the EU market to workers from the group of member states that joined the EU in May 2004. This decision was made in response to the growing evidence of an improving labout market and through labour and an increasing shortage of skilled workers in certain sectors, including: welders, mechanics, infrastructure machine operators and metalworkers. The new legislation, which came into effect in May 2007, will allow a number of skilled workers (up to 800 in 2007) to be employed for a maximum of 50 weeks.7 This move has, however, been criticised by the trade unions and the Chamber of Labour which refute claims of labour shortages and argue that it is just a ploy to maintain low level of pay.
Increasing infrastructure linkages One of the main features of the 2007-08 Austrian budget was the announcement of a substantial increase in funding for the development of the country’s transport network. In March 2007 the government presented a new infrastructure plan which foresees investment
5 Economist Intelligence Unit (2007) 6 Australian Government Department of Foreign Affairs and Trade (2007) 7 Economist Intelligence Unit (2007) Security classification: confidential
at-mi-2007-06-25-brief Business environment 8
of USD 15bn on road, rail and waterways projects over the next three years.8 Austria has an extensive transort network that provides good access to major West European industrial centres and ports. However, following years of underinvestment, the government has identified an urgent need to upgrade transportation links with new and potential EU member states in Eastern Europe. The main priorities are motorway and A-road links with the Czech Republic, Slovakia and Hungary.
Tensions over university quota system However, Austria Whilst Austria’s relationship with th EU is one the whole fairly good, tensions persist over protects its own Austria’s university quota system. The quota system was introduced by the previous government in 2005 to prevent an influx of less academically qualified German medical interests over students who are unable to obtain a place in their national universities and who would crowd university quotas out domestic applicants. The EU Commission has, however, ruled that the current quota system is discrimatory and should be abolished. The Austrian government claims that the quota system is necessary to safeguard the future of the university sector and the functioning of Austria’s healthcare system. If no compromise is reached Austria could face possible court proceedings and a substantial fine.9
Economic overview Economic growth Austria has a well- Austria has a well-developed market economy with high standards of living. The economy is developed economy and relatively robust, but over the past six years, real GDP growth has been below the OECD average. Whilst real GDP growth looked stronger in Austria in 2006 (2.8%) than in the high living standards preceding five years, this is a reflection of the strong growth in the global economy as a whole (with average OECD growth of 3.0%) and the close ties between the success of the Austrian economy and other EU economies (particularly Germany). Hence the higher real GDP growth rate in 2006 does not really suggest a strengthening of the Austrian economy. Nonetheless, Austria’s economic growth is in line with that of its European peers, particularly Belgium and Denmark.10
CHART 2: real GDP growth in annual averages (2000 – 2006)11
5%
4% 4.0% Austria’s Economic 3% growth is lower than 3.0% 2.8% 2.7% 2.7% average but in line with 2.6% its regional peers 2% 1.9% 1.8% 1.8% 1.4%
Real GDP growth (annual change in %) 1%
0% Austria Belgium Denmark Sweden Switzerland
2000 - 2005 Average 2006 Estimate
The interlinked economic performance between Austria and its peers is predicted to continue for 2007 when real GDP growth in Austria is expected to slow down to 2.3%. 12 The
8 Economist Intelligence Unit (2007) 9 Ibid. 10 OECD (2006) 11 International Monetary Fund (2006) 12 Ibid. Security classification: confidential
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key reasons for the predicted moderate deceleration in growth in 2007 and continuing into 2008 in Austria are as follows:
Weaker international environment – The weaker environment is likely to be caused by a weakening of growth in the US in particular.
Fiscal tightening – This is likely to lead to less favourable financial conditions.
Appreciation of the Euro against the US dollar – This is likely to bear down on import prices (including global oil prices, which are denominated in USD).13
Weakening domestic demand – Growth in private consumption has been subdued for a number of years, despite sizeable tax cuts in 2005.
Sectoral context Austria is still The services sector is the most important sector in the Austrian economy, accounting for considered to be an over two-thirds of GDP, followed by industry which accounts for just under one-third. Agriculture plays a minor role in Austria, accounting for just 2% of GDP.14 Despite the industrial economy dominance of the services sector and the maturity of the Austrian economy, Austria is still considered to be an industrial economy as in many segments of the economy it is difficult to distinguish between production and services.
Agriculture Farming is often difficult in Austria as 69% of farmland is located in mountainous areas. Extreme slopes, infertile soil and difficult climatic conditions tend to result in low productivity and low crop yields. It is perhaps as a result of these difficulties that the focus of Austrian agriculture has recently shifted from quantity to quality.
Key trends in Austrian agriculture at present:
The focus of Austrian Organic farming is becoming increasingly important. 10% of Austrian farms are organic and Austria now ranks number one for organic farming in the EU.15 The Agriculture has shifted ‘ecologising’ of farming through organic conversion and agri-environmental from quantity to programmes has contributed to a 50% reduction in the use of fertilisers since the quality 1970s.16 Thus Austrian farms can be seen to be playing an increasingly important role in landscape conservation and environmental protection.
Stable farm sizes and types. Austria is unusual amongst EU countries in that, despite having many small farms and high labour usage, farm sizes and types have remained fairly stable during the past 10 to 15 years. Austria appears to have experienced a lower rate of structural change than other EU member states, perhaps because of the willingness of its consumers and tax payers to support the current system of farming.
Manufacturing Industry is the main Whilst the services sector generates more employment and GDP in Austria, industry is the driver of economic principal driver of economic activity and development. Austria has one of the world’s largest industrial sectors. Most businesses are small or medium-sized and 80% have fewer than activity and production 17 100 employees. is growing strongly The following trends are observable in Austrian industry at present:
Industrial production is growing strongly. Growth in manufacturing output in the final quarter of 2006 was 10.2% year on year, the strongest rate of expansion in the past six years.18 This growth is being driven by double digit growth in the production of intermediate and capital goods and robust demand in Eastern
13 Economist Intelligence Unit (2007) 14 Central Intelligence Agency (2007) 15 Research Institute of Organic Agriculture (2004) 16 European Environmental Advisory Councils (1999) 17 EU AT (2006) 18 Economist Intelligence Unit (2007) Security classification: confidential
at-mi-2007-06-25-brief Business environment 10
Europe and Germany. The brisk activity in the manufacturing sector appears set to continue for some time yet.
Indications of a slowdown in production. Despite the high growth in industrial production of late, there are indications that the growth of industrial activity may have peaked. Indeed, the Austrian Institute of Economic Research reported a modest weakening of firms’ production expectations at the beginning of 2007.19
The construction sector is lively. Construction output rose strongly in 2006, in response to robust demand, high levels of capacity utilisation and rising employment. The growth is primarily being driven by the private sector, however, there have also been positive developments in public sector construction. The outlook for the sector looks bright, although growth is expected to continue at a more modest pace.
Services Services represent the largest sector in the Austrian economy, accounting for 68% of GDP and 70% of employment in Austria.20
Key trends in the services sector:
Whilst services are Growth is sluggish. During 2006 the services sector grew by 1.7%, down from 2.3% in 2005 and lagging well behind the growth rate of the industrial sector and generating new jobs, 21 the economy as a whole. Above average growth was, however, recorded in growth is sluggish financial services, real estate, business services, and in the transport and communications sector.
The services sector is generating new jobs. Despite the sluggish growth in the services sector, it generates around 70% of employment in Austria, with new jobs, particularly part-time work, appearing almost exclusively within this sector. The largest employers are retail, trade and tourism.22
Economic drivers
Austria’s keys to The Austrian economy is mature and robust. Austria’s economic success can be attributed to two key factors: Austria’s location as the gateway to Eastern Europe, and its skilled and success are its location highly qualified workforce. Nonetheless, certain sectors of the economy are performing and its highly skilled better than others. Key segments which have been driving growth during the past few years workforce include: the tourism industry, the automotive industry, biotechnology, and venture capital and private equity.
Tourism Austria is a major tourist destination. It was ranked as the 10th most popular tourist destination in the world in 2005, accounting for 5% of tourists in Europe.23
Austria was also ranked 9th in the world for the revenue generated from tourism, which amounted to USD 15.5bn in 2005.24 In 2006 tourism generated 9% of Austria’s GDP. Over 40,000 businesses are involved in the Austrian tourism industry, which employs around 500,000 people.25 Two-thirds of tourists come from Germany, but significant numbers also come from the Netherlands and the UK.
19 Economist Intelligence Unit (2007) 20 Central Intelligence Agency (2007) 21 Economist Intelligence Unit (2007) 22 EU AT (2006) 23 World Tourism Organization (2006) 24 Economist Intelligence Unit (2007) 25 EU AT (2006) Security classification: confidential
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CHART 3: top ten tourism destinations (2005)26 CHART 4: top ten tourism earners (2005)27
80 80 81.7 76.0
60 60 55.6 49.4 46.8 47.9 40 40 42.3 36.5 35.4 30.0 30.7 29.3 29.2 20 International Tourist Arrivals (in millions) 21.9 20 21.5 20.3 20.0 International Tourism Receipts billion (in USD) 18.2 15.5 15.0
0 0 France Spain US China Italy UK Mexico Germany Turkey Austria US Spain France Italy UK China Germany Turkey Austria Australia
Austria is promoting itself as a destination for the following different types of tourism:
Austria is promoting Mass Tourism. Austria’s largest attraction is the Alps, which generate revenue itself as a destination from skiing in the winter and from hiking and camping in the summer. The cities of Vienna and Salzburg are also popular tourist destinations, particularly in the for mass, health and summer months. eco-tourism Health Tourism. During the past five years Austria has been promoting itself as the health and wellness destination for central and Eastern Europe. Austria is now a world leader in the provision of health tourism, and provides services for both medical treatment and general wellbeing. The main concentrations of Austria’s health tourism facilities are in: Tyrol, Salzburg, Carinthia-East Tyrol and Styria.28 In its marketing, Austria has focused on targeting key German markets.
Eco-Tourism. Austria has recently focused on developing regions for nature- based holidays, which involve activities like: hiking, mountaineering, farm holidays, national park holidays, and nature reserve holidays. Austria has prioritised certain eco-regions for eco-tourism development, however, 35-40% of Austria’s landscape meets the criteria for potential eco-tourism destinations.29
Automotive Industry Austria is rapidly Austria is rapidly becoming an international hub for the automotive industry. In 2004, the automotive sector numbered around 700 companies and 175,000 employees. The industry becoming a hub for the is one of Austria’s most important industrial sectors. In 2004, the industry generated around automotive industry USD 48bn, of which exports accounted for USD 14bn.30
One of the key reasons behind Austria’s success in the automotive industry is its location at the heart of the rapidly growing automotive region of Eastern Europe. GM, Audi, Volkswagen, PSA Citröen and Magna are some of the well-known companies which have set up manufacturing facilities in and around Austria. Moreover, more than 1,000 international companies such as Magna, Renault and Volvo, run their Eastern European operations from their base in Austria.31
One of the key automotive clusters within Austria is the Automotive Cluster Vienna Region, which includes the provinces of Vienna, Lower Austria and Burgenland. The key attractions of this region are: the business environment, high quality of life, the high level of technical education, and the proximity to the new and potential EU members in Eastern Europe.32
26 World Tourism Organization (2006) 27 Ibid. 28 Stolba, P (2003) 29 Visit Scotland (2007) 30 ABA (2007) 31 Ibid. 32 ACVR (undated) Security classification: confidential
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Biotechnology By 2010 biotech The economic opportunity in the Austrian biotech industry is reported to be very high. Biotech products already have a 20% share of the pharmaceuticals market, and it is products are likely to expected that by 2010 their share will be at least double this.33 have a 40% share of pharmaceuticals The eastern part of Austria is amongst the top 20 regions in the world in terms of biotech patents. Over 100 specialist firms and around 170 research institutions employ 10,000 people to conduct biotechnology research and development.34 The Boston Consulting Group projects that by 2015 Austria will gain 12,000 additional high-tech jobs, primarily in cancer research and related areas.35
Numerous initiatives support the biotech boom in Austria, including: cluster formation, centres of competence, attractive research funding and a research tax allowance of up to 35%.36 In May 2005 the EU directive on the legal protection of biotechnological inventions was implemented.
Venture capital and private equity The Austrian venture Between 2004 and 2005, the European venture capital market grew by 27%, and this capital market is growth trend is expected to continue for the next few years. In line with this trend, the Austrian venture capital market is booming. Around 30 venture capital companies are booming operating in Austria. In 2005, these firms committed a total of USD 179m to 217 investment projects, 39 more than in 2004.37
Growth-oriented small and mid-sized companies dominated the venture capital and private equity market with a market share of 74%.38 More than half of the capital invested is designed for the financing of half-tech projects. The information and communications technology sector performed particularly well, absorbing 38% of the funding in 2005, followed by the chemical products and materials segment (10.3%), as well as industrial products and services, with a 14.6% share.39
To a large extent, the origin of the capital inflows corresponds to the typical structure of venture capital in Europe. Banks represent the largest group of financial investors by far, followed by the public sector and insurance companies. About half the projects involved expanding an existing business, whereas start-ups accounted for slightly more than one- third of the project, and about 15% were buyouts.40
Economic challenges Overall, the Austrian economy is maintaining its position among the top performing European economies. Nonetheless challenges remain to Austria maintaining its current level of economic performance.
Ageing population The Austrian workforce A key challenge for Austria over the medium term will be its ageing population. Between is likely to contract by 2000 and 2050 the Austrian workforce is projected to contract by ten percentage points, and the number of people over 65 years of age is predicted to grow by 15 percentage points, as ten percentage points summarised by the charts overleaf.41
33 ABA (2007) 34 Ibid. 35 Ibid. 36 Ibid. 37 Ibid. 38 Ibid. 39 Ibid. 40 Ibid. 41 US Census Bureau (2006) Security classification: confidential
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CHART 5: Austrian population projections (2000 and 2050)42
2000 Age 85+ Male 80-84 Female 75-79 70-74 65-69 60-64 The portion of elderly 55-59 50-54 Austrians is predicted 45-49 40-44 to grow by 15 35-39 percentage points 30-34 25-29 20-24 15-19 10-14
5-9 0-4
400 300 200 100 0 100 200 300 400 Population in thousands
2050 Age 85+ Male 80-84 Female 75-79
70-74
65-69
60-64
55-59
50-54 45-49
40-44
35-39
30-34
25-29
20-24
15-19 10-14
5-9
0-4
400 300 200 100 0 100 200 300 400 Population in thousands Reforms will be needed The reduction in the working population and growth of the elderly population is likely to bring to boost labour force about challenges in the medium-term as the relatively low labour force participation rates of older workers is likely to increase the burden of ageing on the Austrian economy. Reforms participation and will thus be needed in order to boost labour force participation and employment, whilst employment fostering productivity growth. Tackling issues of seasonal unemployment and high youth unemployment may prove fruitful in this endeavour.43
Inefficiency of government State inefficiencies are Another key challenge for Austria over the medium terms will be tackling the perceived lack likely to be a legacy of of efficiency and the high cost of service provision within the government sector. Such inefficiencies are most likely a legacy of Austria’s formerly centrally planned economy. central planning In order to maintain its current level of economic performance Austria will need to make the government sector more efficient and to deliver high quality public services at a lower cost to society. A key measure which could be implemented to achieve these aims is reform of the Austrian government’s budgeting procedures in order to reduce the high level of public sector debt.44
42 US Census Bureau (2006) 43 OECD (2005) 44 Ibid. Security classification: confidential
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Insurance environment
Regional premiums Austria’s insurance Austria’s regional peers can be divided into two groups: the larger non-life markets which market is growing at the have exhibited higher absolute growth and the smaller markets. Austria fits into the latter category. Nonetheless, Austria’s relative insurance market growth rate is in line with that of same rate as Denmark Denmark and Belgium, which also have the same rate of economic growth. and Belgium CHART 6: absolute and relative growth of markets (2005)45
50%
Sweden Legend 40% Belgium Denmark Size of bubble is equivalent Hungary Austria to 2005 premium levels 30% Switzerland
≈ USD 5bn 20%
Germany
2002 - 2005 Market premium growth (in %) (in growth premium Market - 2005 2002 10%
0% 0.0bn 1.0bn 2.0bn 3.0bn 4.0bn 5.0bn 6.0bn 2002 - 2005 Market premium growth (in billlion USD)
Level of development The insurance density and premium levels for Austria highlight that its insurance market is highly developed. Moreover, the Austrian insurance market compares favourably with the insurance markets of its regional peers, particularly Belgium and Denmark. Nonetheless, the penetration of insurance in the Austrian market is significantly below the OECD average.
CHART 7: comparative development indicators (2005)46
3000 6.0% Penetration = premium as a proportion of GDP (in % of GDP) % of GDP (in proportion of as a = premium Penetration
2,480 5.0% 5.0%
2000 4.0% Austria’s insurance 3.7% market is highly 3.3% 2.9% developed 2.8% 1,386 3.0% 1,248 2.5% 1,106 987 1000 997 2.0%
Density = premium spent per capita (in USD) 1.0%
0 0.0% Austria Belgium Denmark Sweden Switzerland OECD
Density Penetration
45 Sigma (2006) 46 Lloyd’s Market Intelligence calculation based on Sigma (2006) Security classification: confidential
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Country premiums Following a period of slow decline between 1995 and 2001, the events of 9/11 and the ensuing worldwide reduction in reinsurance capacity sparked a significant growth in Austrian non-life premiums. Indeed, the average growth rate for the period 2001 to 2004 was 18%. 47 However, in common with other territories in Europe, the non-life market is now softening. Thus the growth in insurance premiums between 2004 and 2005 was negligible.
CHART 8: non-life direct premiums (1995 – 2005)48
12
10 10.1 9.7
8 Following a period of 8.2 8.4 7.9 slow decline, premiums 6.9 6.8 have grown strongly 6 6.5 6.6 5.8 5.9 since 2001 4 Nominal marketNominal premiums (in billion USD) 2
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Non-life direct premiums
Business classes The Austrian non-life market is strongly influenced by the motor, PA & healthcare and property sectors, which together account for 86% of business.49 Thus the Austrian market displays a lack of diversification, which suggests that there may still be potential for growth in more sophisticated lines of business.
CHART 9: business classes (2005)50
PA & Healthcare* 26%
The non-life market is Property 24% heavily influenced by motor, PA & healthcare
and property business Austria 2005: USD 10.1bn
Liability 7%
Motor 36%
Miscellaneous 6% MAT 1%
* Written by non-life companies
47 Lloyd’s Market Intelligence calculation based on Sigma (2006) 48 Sigma (2006) 49 AXCO (2006b) 50 AXCO (2006b); and Sigma (2006) Security classification: confidential
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Third party liability insurance is compulsory for the following exposures:51
Motor Attorneys Air carriers Public notaries and accountants Carriage of passengers by land Genetic technology operators Carriage of dangerous goods Insurance intermediaries Pharmaceuticals manufacture Electronic signature certificators Nuclear operators Bonds in respect of travel operators Pipeline operators
PA & healthcare The government has The Austrian government has actively encouraged the development of personal accident encouraged the growth business through tax incentives and now one in two Austrians has personal accident insurance. This class has been consistently profitable with stable loss ratios between 2001 of PA business through and 2005. PA & healthcare grew by an average of 13% per annum between 2001 and tax incentives 2005, with a significant growth spurt of 25% between 2002 and 2003.52
Premiums have varied little since 2000, thus insurers have competed for business mainly by offering additional benefits and by differential ratings. Indeed, ratings now take into account leisure-time activities and gender, and new products reflect statistically better risks.
53 CHART 10: PA & health premiums and loss ratios (2001 – 2005)
2800 80%
2600 2624 2518 2400 72% 71% 70% 70% 70% 70% Loss Ratio (in %)* 2200 2205
2000
60%
Premium (in million USD) million (in Premium 1800 1763 1600 1632
1400 50% 2001 2002 2003 2004 2005
Premiums (in million USD) Loss ratios (in %)
Property Under the freedom of A number of European Economic Area (EEA) insurers have started to transact insurance services, insurer business in Austria under the Freedom of Services Act. This had a major effect on industrial and large commercial risks, offering lower rates than local markets are willing to accept and competition has thus increasing competition. The market initially offered substantial rate decreases, although increased significantly this trend has now ceased.
Results in most property classes were good in 2004, however, some sub-classes were not profitable. Whilst loss ratios have decreased overall, loss ratios for commercial risks and householder policies have increased. Nonetheless, property grew by an average of 15% per annum between 2001 and 2005, with a significant growth spurt of 27% between 2002 and 2003.54
51 Lloyd’s (2007) 52 Lloyd’s Market Intelligence calculation based on AXCO (2006a) 53 AXCO (2006a) 54 Lloyd’s Market Intelligence calculation based on AXCO (2006a) Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 17
CHART 11: property premiums and loss ratios (2001 – 2005)55
2500 70%
2303 2201 2000 60% 59%
1900 Loss Ratio (in %)* 55% 52% 1500 50% 50% 50% 1500 1348 Premium (in million USD) million (in Premium 1000 40%
500 30% 2001 2002 2003 2004 2005
Premiums (in million USD) Loss ratios (in %)
Liability Liability is a fairly small Liability is a fairly small class within the Austrian non-life market, however growth is class, however growth expected within this class in the next few years, for two main reasons. First, the post-9/11 hard market is slowly softening. Second, the public is becoming more litigious and whilst is expected this tendency is not yet reflected in statistics, it is expected that it soon will be. Average limits for industrial and commercial general third party liability are increasing continually, however, insurers are maintaining careful watch over this trend.
Until 2000 there had been no major general third party liability losses in the Austrian market. In November 2000, however, 155 people suffocated when a fire broke out in a railway tunnel near Kaprun. The operating company had third party cover for USD 20.3m, of which USD 3.2m was paid to victim’s families to cover funeral and maintenance costs.56 As a result of this claim, the liability loss ratio was significantly higher in 2000 (88%), but it has been falling since.57
CHART 12: liability premiums and loss ratios (2001 – 2005)58
800 90%
726 683 80% 600 77% 74% 585 Loss Ratio (in %)* 70% 70%
400 451 410 61% 60% 60% Premium (in million USD) million (in Premium 200 50%
0 40% 2001 2002 2003 2004 2005
Premiums (in million USD) Loss ratios (in %)
55 AXCO (2006a) 56 Ibid. 57 AXCO (2006b) 58 AXCO (2006a) Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 18
MAT MAT business has a very The Austrian MAT market represents a very small portion of the overall non-life market. The small portion of the market is, nonetheless, stable and premium income is limited by profit sharing agreements. Following two years of poor loss ratios, and under pressure from reinsurers, insurers began non-life market implementing improvement measures in 2000 and resulting improvements have continued.
The newly extended EU has not had a dramatic effect on the Austrian MAT market. Whilst exports have been increasing for a number of years the globalisation trend has meant that good local business is tending to be covered under international programmes. As such, the scope for growth in this class of business is limited.
CHART 13: MAT premiums and loss ratios (2001 – 2005)59
160 70%
65%
136 137 60% 120 129 Loss Ratio (in %)* 105 51% 50%
80 87 46% 44% 43% 40% Premium (in million USD) million (in Premium 40 30%
0 20% 2001 2002 2003 2004 2005
Premiums (in million USD) Loss ratios (in %)
Market players The Austrian non-life market is fairly concentrated with the top ten insurers sharing 84% of the market. At the end of 2005 there were 73 insurance companies established in Austria, of which 15 were branches of foreign companies, particularly German and Italian companies.60
CHART 14: market share of the largest non-life insurers (2005)61
Vienna Insurance Group 16% Allianz Elementar 9%
The top ten non-life Grawe 3% insurers in Austria have Zürich 3% a 84% share of the Oberösterreichische 2% Merkur 2% market Generali Group 22% Total non-Life Niederösterreichische 2% Premiums 2005: Wüstenrot 2% USD 10.1bn
Other 15%
Uniqa Group 24%
59 AXCO (2006a) 60 AXCO (2006b) 61 Austrian Financial Market Authority (2006); and Sigma (2006) Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 19
In addition to established Austrian companies, a number of EEA insurers have started to transact business in Austria under the Freedom of Services Act. However, the extension of the EU has not had a major effect on the Austrian market. The key reason for this being that a number of larger Austrian insurers were previously writing business in the new member states, and are now strongly represented in central and Eastern Europe. The focus of these companies on growing their business in Eastern Europe has been at the expense of domestic growth.
Largest non-life insurers
UNIQA Group www.uniqagroup.com UNIQA Versicherungen AG is an Austrian company, which is headquartered in Vienna. UNIQA provides insurance products and related services through its 30 subsidiaries, the main ones of which are:62 UNIQA Sachversicherung AG: offers property and casualty insurance UNIQA Personenversicherung AG: offers personal insurance Raiffeisen Versicherung AG: offers life insurance CALL DIRECT Versicherung AG: markets accident, life and health insurance products FinanceLife Lebensversicherung AG: develops products for the whole group.
In the 8 years since its The UNIQA Group Austria is currently active as a European insurance group in 16 formation, UNIQA has countries. In the eight years since its formation, the UNIQA Group has quickly established itself in the domestic, Central and Eastern European markets. In Austria UNIQA is the established itself as a leading insurance group, employing approximately 6,500 employees. UNIQA enjoys 89% market leader in Austria familiarity amongst the Austrian public and is the undisputed top brand for 54% of Austrians.63 UNIQA is pursuing an expansion strategy in central and Eastern Europe, and entered the Serbian and Ukrainian insurance markets in 2006.64 In Central Europe, UNIQA focuses on specific customer segments and niche lines, however, in Eastern Europe UNIQA has positioned itself as an insurer which covers all industries. UNIQA offers its products and services through a range of sales channels, including brokers and general agencies, banks and direct sales.65
The growth of the UNIQA Group Austria has been impressive. Indeed, in 2005 the UNIQA Group wrote approximately USD 5.9bn worth of premiums and earned roughly USD 238m of profit, one third of which was earned in foreign countries.66 Moreover, in 2005 UNIQA’s share achieved an outstanding performance of 121%. UNIQA is listed in the prime market of the Vienna Stock Exchange and enjoys a stable ‘A’ rating from Standard & Poor’s.67
Generali Group www.generali.com The Generali Vienna The Generali Vienna Group is a fully integrated provider of financial services in Central and group is made up of over Eastern Europe. The Group operates under the umbrella of Generali Holding Vienna AG, which is headquartered in Vienna, and is made up of over 60 companies in Austria, 60 companies 68 Hungary, the Czech Republic, Slovenia, Slovakia, Poland, Romania and Croatia. These companies offer insurance, real estate, investment and finance services. In 2006, in line with its expansionist strategy in Eastern Europe, the Generali Vienna Group entered the Serbian, Ukrainian and Bulgarian insurance markets. The Austrian segment of the Generali Vienna Group includes a holding company (Generali Holding Vienna AG), two insurers (Generali Versicherung AG and Europäische Reiseversicherung AG), service companies and finance companies.69
62 Google Finance (2007c) 63 UNIQA Group Austria (2007) 64 Google Finance (2007c) 65 UNIQA Group Austria (2007) 66 Ibid. 67 Ibid. 68 Generali Gruppe (2007) 69 Ibid. Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 20
Generali Holding Vienna AG is the parent and the reinsurer of the Generali Vienna Group. As a management holding company, it steers the group and its members in Austria and Central and Eastern Europe. The Generali Vienna Group is part of the global Generali Group, one of Europe’s three largest insurance groups. The parent company of the Generali Group is Assicurazioni Generali, an Italian insurance company which is headquartered in Trieste (Italy). The Generali Group is located in approximately 40 countries worldwide.70
The Generali Vienna In 2006, the Generali Vienna Group wrote approximately USD 2.5bn of non-life premiums, which was a 9.5% increase on the premiums written in 2005.71 The Generali Vienna Group Group wrote 9.5% more serves both the domestic and the Eastern European market and in response to the premiums in 2006 than in enlargement of the EU, the group is actively pursing an expansion strategy in Eastern 2005 Europe. Indeed, in 2006 the Generali Vienna Group entered into the Serbian, Bulgarian and Ukrainian insurance markets. In 2006, 32% of the group’s premiums were written outside of Austria72
Vienna Insurance Group www.wienerstaedtische.com The Vienna Insurance Group is an Austrian insurance company, headquartered in Vienna, which offers a range of products and services tailored to the requirements of private, commercial and public sector customers in 17 European countries. Its products include: property and casualty, health insurance, life assurance, and motor insurance.73 The companies of the Vienna Insurance Group are: Wiener Städtische Versicherung AG, Donau Allgemeine Versicherungs Aktiengesellschaft and Bank Austria Creditanstalt Versicherung AG (life insurance only).
Premium growth for Wiener Städtische Versicherung AG is active in all segments of the Austrian insurance Wiener Städtische in market nationwide. Gross premiums written by this company in 2006 amounted to USD 3bn, of which 40% can be attributed to property and casualty business, 12% to health, and the 2006 was significantly 74 remainder to life insurance. 2006 was a very successful year for Wiener Städtische AG in above the average rate the property and casualty classes. Premiums written amounted to USD 1.2bn, representing a 5.8% increase on 2005 premiums, a rate of growth significantly above the 2.8% growth for the market as a whole.75
Donau Allgemeine Versicherungs Aktiengesellschaft is 90% owned by Wiener Städtische AG (with the remaining shareholders being Erste Bank and Sparkassen Versicherung). Donau Allgemeine is represented throughout Austria via approximately 60 offices and service centres.76 New and innovative products contributed to Donau Allgemeine’s success in 2006, with gross premium growth of 5.7% to USD 835m. Of this growth, 3.2% can be attributed to property and casualty business.77
The Vienna insurance Group is currently pursuing expansionist strategies in the domestic, central and Eastern European markets. The key reasons for its expansion in Central and Eastern Europe are the low level of insurance penetration and the strong, stable growth within the region.
Allianz Elementar www.allianz.at Allianz Elementar Versicherungs AG is an Austrian company, which is headquartered in Vienna. Allianz Austria provides a wide range of insurance products, including: life, health, auto, casualty and property insurance. The Allianz Austria Group also provides a range of provision, asset management and financial services products. The company's product portfolio is divided in two categories: private and corporate customers. Allianz Elementar
70 Google Finance (2007b) 71 Generali Gruppe (2007) 72 Ibid. 73 Google Finance (2007d) 74 Vienna Insurance Group (2007) 75 Ibid. 76 Ibid. 77 Ibid. Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 21
Versicherungs AG is a subsidiary of Allianz AG.78 The company, which employs 3,000 people, is part of the global Allianz Group.79 The Allianz Group provides more than 60m customers in over 70 countries with a comprehensive range of insurance, banking and asset management services.80
Allianz Austria is the In 2006, Allianz Austria wrote USD 1.2bn of direct insurance business, making it the fourth largest group operating in the Austrian non-life insurance market.81 Allianz Austria operates fourth largest group in through various channels, including a direct sales force, agents, brokers and the internet. the Austrian non-life Private and institutional clients are mainly handled through its nationwide network of agents. market In the face of falling margins, retaining customers and protecting profits are top priorities.
Key non-life insurers
Grazer Wechselseitige Versicherung (GRAWE) www.grawe.at GRAWE, headquartered in Graz, is the fifth largest insurance company in Austria. GRAWE operates not only in Austria, but also in Slovenia, Croatia, Bosnia, Hungary, Romania, the Ukraine, Moldova and Montenegro.82 GRAWE offers a range of insurance products including: personal, commercial, travel, agriculture, legal protection, household and vehicle insurance. In 2006, GRAWE wrote USD 402m of direct insurance premiums, giving it a 3% share of the Austrian non-life market.83
Zürich Versicherung www.zurich.at Zürich Versicherung Österreich (Zurich Austria) is the Austrian segment of the international Zurich Financial Services Group. Products offered by Zurich Austria include: accident, legal expenses, motor, household and contents, investment and life insurance.84 In 2006, Zurich Austria wrote USD 375m of direct non-life insurance premiums in Austria, giving it a 3% share of the market.85
Zurich aims to seek new In January 2007 the Zurich Financial Services Group established its central and Eastern growth opportunities in Europe business group in Vienna. This new business unit, which incorporates Zurich’s pre- existing operations in Austria and Russia, is expected to accelerate Zurich’s growth plans in Central and Eastern Austria and Russia and to enable Zurich to seek new growth opportunities in Central and Europe Eastern Europe.86
Oberösterreichische Versicherung www.keinesorgen.at With 341k customers in the Upper Austria region, the Oberösterreichische Versicherung (Upper Austria Insurance) company is a market leader in non-life insurance within Upper Austria.87 The company is, however, seeking further expansion, not only in Upper Austria, but also in the regions of Styria and Salzburg. In 2006, Upper Austria Insurance company, wrote non-life premiums totalling around USD 300m, a 2% increase on 2005. 88
Merkur Versicherung www.merkur.at Merkur Versicherung AG, headquartered in Graz, is the oldest insurance company in Austria, having been founded in 1798. Merkur provides all types of insurance, but is best known for its voluntary health insurance programmes. Merkur has operations within Austria as well as in Slovenia, Bosnia and Herzegovina, Croatia, and Romania. In 2006, the
78 Google Finance (2007a) 79 SAS (2007) 80 Allianz (2007) 81 Austrian Financial Market Authority (2006) 82 Grazer Wechselseitige (2003) 83 Austrian Financial Market Authority (2006) 84 Zürich Versicherung Österreich (2007) 85 Austrian Financial Market Authority (2006) 86 Zurich Financial Services (2006) 87 Oberösterreichische Versicherung (undated) 88 Austrian Financial Market Authority (2006) and Oberösterreichische Versicherung (undated) Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 22
company wrote USD 284m of premiums, of which roughly 20% was derived from outside of Austria.89 Merkur employs approximately 1,000 people and has roughly 600k clients.90
Niederösterreichische Versicherung www.noevers.at The Niederösterreichische Versicherung AG (Lower Austria Insurance) company has a number of operations in Vienna and the Lower Austria region. Lower Austria Insurance is currently developing its market position in order to become the leading insurance company in the Lower Austria region. In 2006, Lower Austria Insurance wrote roughly USD 238m of direct non-life insurance premiums in Austria, giving it a 2% share of the market.91
Wüstenrot www.wuestenrot.at Desert Red insurance Wüstenrot Versicherungs AG (Desert Red Insurance), which is based in Salzburg, was branched out into non- originally formed as a life insurance company in 1976, but branched out into non-life products in 2001.92 Desert Red Insurance wrote approximately USD 214m of non-life life insurance in 2001 premiums in 2006, giving it a 2% share of the Austrian non-life market.93
Distribution The division of Austrian non-life business by distribution channel is as follows:
CHART 15: distribution channels for non-life insurance (2005)94
Brokers 30%
In 2005, almost half of non-life income was gained through direct handling Total non-Life
Direct Handling 48% Premiums 2005: Agents 13% USD 10.1bn
Bancassurance 5%
Other 4%
Direct handling In 2005, almost half of the total non-life market income was gained through companies’ own sales forces. Professional standards of agents have risen considerably since 2000 when the Insurance Supervisory Act was amended to require the same standards in respect of qualifications and experience from insurance salespersons as from brokers and agents.95
There is an ongoing Despite the dominance of insurers’ salesforces in the Austrian non-life market, there is an change from salaried ongoing trend of insurers moving from a salaried salesforce to exclusive agents and brokers in order to reduce underwriting expenses. Commissions received by sales staff (on top of salesforces to agents their basic salaries) have been falling over the last few years as insurers have attempted to and brokers reduce their expense ratios, which are higher in Austria than in most other European countries.
89 Austrian Financial Market Authority (2006) and derStandard.at (2007) 90 derStandard.at (2007) 91 Austrian Financial Market Authority (2006) 92 Wüstenrot AG (2007) 93 Austrian Financial Market Authority (2006) 94 AXCO (2006b) 95 Ibid. Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 23
Intermediaries It is expected that the Brokers (both domestic and foreign) are becoming increasingly important in the Austrian insurance market and it is expected that their market share will continue to increase. market share of brokers Brokers currently account for 30% of the non-life market and for about 75% of industrial will continue to business.96 In order to provide a full service their larger Austrian clients, the larger Austrian increase brokers are generally represented in Eastern European countries. The Austrian brokers’ association is the Verband Österreichicher Versicherungsmakler in Vienna. The association currently has around 50 members plus 45 affiliated members.97
The number of insurance agents in Austria increased substantially following Allianz Elementar’s decision in 2001 to change the status of its salesforce to an agency basis. However, following the introduction of the Insurance Mediation Directive in January 2005, the number of active insurance agents has reduced dramatically and is expected to drop further in view of the qualifications required and the mandatory professional liability cover.
Other distribution channels Bancassurance is much more popular as a distribution method for life assurance (47% of life business) than for non-life insurance (4% of non-life business) due to the relatively advanced level of interconnection between certain financial institutions.98 Distribution of non-life bancassurance occurs mainly through banks and post offices.
Although a number of insurers offer insurance products over the internet, sales to the public remain limited. The internet is used more as a source of information than as a sales channel. The key reasons for this are that clients prefer to discuss their insurance needs with a salesperson, agent or broker, and there is still a reluctance to give credit card or bank account details over the internet.
Direct marketing companies, the largest of which is UNIQA’s CALL DIRECT, are estimated to account for less than 1% of the non-life market.99
Factors affecting performance The following factors have had significant impacts on the Austrian non-life market during the past few years:
Austrian insurers have Extension of the EU: The interest of a number of Eastern European countries in been very successful in joining the EU has encouraged Austrian insurers to extend their operations into Central and Eastern European countries. Austrian insurers have been very successful establishing themselves in establishing themselves in Eastern Europe. in Eastern Europe Freedom of Services Act: This has opened up the Austrian market to competition from large insurance groups, which initially had significant impacts on rates, particularly for industrial and large commercial risks.
HORA – Flood Risk Zoning: Shortly after the flooding events of 2002 in Austria, the Austrian insurance sector created a natural disaster zoning system called HORA. This system, which was jointly developed with the Federal Ministry of Agriculture, Forestry, Environment and Water Management, provides information for exposing the risks of earthquakes and floods. As such, this system helps in developing effective preventative measures and insurance solutions for natural catastrophes.100
96 AXCO (2006b) 97 Ibid. 98 Ibid. 99 Ibid. 100 Austrian Insurance Association (2007) Security classification: confidential
at-mi-2007-06-25-brief Insurance environment 24
EU Insurance Mediation Directive
In January 2005 Austria implemented the Insurance Mediation Directive, the main aims of which were to clearly define quality standards for insurance mediations and to maintain consumer protection.
Austria has been singled out as exemplary in incorporating the EU Directive into its existing regulations. However, implementation of the regulations in practice met some resistance as follows:101 The general consensus amongst market practitioners is that they were not adequately consulted prior to the implementation of the new law. The implementation of Relicensing and monitoring moved slowly due to the large number of part-time agents the EU Directive has met and small brokers. with some resistance Not all insurance mediators can easily afford to buy professional liability cover to the full limit of USD 1,183m. The requirements for consultation protocols can be awkward to follow in practice. The Directive requires various insurance products to be compared and choices justified, however, some products are difficult to compare.
101 AXCO (2006b) Security classification: confidential
at-mi-2007-06-25-brief Lloyd’s business 25
Lloyd’s business
Regional premiums Lloyd’s business from Lloyd’s business from Austria is fairly small, but growing fairly quickly compared to its Austria is fairly small European peers. Indeed, the growth rate of Austrian business (17%) was second only to that of Switzerland (25%) between 2005 and 2006, and significantly above the growth in compared to that of its Lloyd’s business from Denmark, Sweden and Belgium. This growth highlights that whilst the regional peers volume of business from Austria is currently small, it is growing well.
CHART 16: Lloyd’s gross premiums∗ in million USD (2005 – 2006)102
30%
Switzerland
Austria Legend 15% Size of bubble is equivalent to 2006 premium levels Denmark ≈ USD 50m 0%
2006 Lloyd's premium growth (in %) (in growth premium 2006 Lloyd's Sweden
Belgium -15% -20m 0m 20m 40m 60m 80m
2006 Lloyd's premium growth (in milllion USD)
Country premiums Lloyd’s premiums from Austria are heavily concentrated into the Q1 renewals (at the beginning of the calendar year). Throughout the rest of the year (and across years) premiums are fairly stable at around USD 9m per quarter.
CHART 17: Lloyd’s gross premiums* in million USD (2005-2007)103
25
20 20m 20m
Lloyd’s premiums from 15 16m Austria are heavily concentrated into the 10 Q1 renewals 10m 10m 10m 9m
Gross premiums (in premiums millionGross USD) 8m 8m 5
0 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1
∗ Premium figures are based on signed premiums year of account 102 Xchanging (June 2007) 103 Ibid Security classification: confidential
at-mi-2007-06-25-brief Lloyd’s business 26
Lloyd’s status Lloyd’s is licensed to Lloyd’s is licensed to write all types of direct services business and all classes of write direct services reinsurance. However, Lloyd’s is not authorised to write establishment business. and reinsurance For more details, underwriters should direct any queries to Lloyd’s International Trading business in Austria Advice at [email protected].
Business classes Over half of Lloyd’s Austrian business is property. Lloyd’s also writes significant volumes of Austrian liability and aviation business. Since motor, PA & healthcare and property insurance dominate the Austrian non-life market, however, just under half of Lloyd’s Austrian business is concentrated into niche lines.
CHART 18: Lloyd’s gross premiums∗ by business class (2006)104
Liability 16%
Over half of Lloyd’s Aviation 13% Austrian business is Property 56% Austria 2006: property USD 49m
Miscellaneous 7%
Marine 5%
PA & health 2% Motor 1%
Even within the property class, which is a more traditional class of business, Lloyd’s is tending to focus on niche lines, e.g. catastrophe exposures, fine art and terrorism. Thus Lloyd’s business in Austria is generally specialist and niche and thus typically the types of business that are not readily available locally.
CHART 19: Lloyd’s gross premiums* by risk codes (2006)105
12
11m 10
8 Lloyd’s business in Austria is generally 6 specialist and niche 4 5m 5m 4m 3m 3m Gross Premiums by risk group inUSD. (m) 2 3m 3m 2m 2m
0 Property cat Fine Art Professional Terrorism Political Engineering Property General General Marine hull XL indemnity risks risk XS aviation aviation (hull) (liabs)
∗ Premium figures are based on signed premiums year of account 104 Xchanging (June 2007) 105 Ibid Security classification: confidential
at-mi-2007-06-25-brief Lloyd’s business 27
Broker analysis The broker market The broker market within Austria is fairly diversified, with Lloyd’s business being introduced within Austria is fairly from a range of brokers. Aon provides Lloyd’s with the most business from Austria, however, Aon does not dominate the broker market for Lloyd’s and 35% of business is diversified brought in by a range of smaller brokers.
CHART 20: Lloyd’s top six brokers by gross premiums∗ (2006)106
18
17m
15
12
9 9m
6 6m 5m 4m Gross premiums by brokers (in million USD) million (in brokers by premiums Gross 3 3m 3m
0 Other Aon Limited Liberty BMS Group Ltd Willis Limited Marsh Ltd FirstCity Syndicate Partnership Management
Four of the top six Of the top six brokers for Lloyd’s in Austria, four concentrate largely or wholly on property brokers for Lloyd’s business, one broker places a diversified book of business and one focuses solely on liability business. concentrate on property business CHART 21: Lloyd’s top six brokers*by business class107 (2006)108
Aon Liberty Syndicate Management BMS
Aviation 26% Key:
Property 56% Property 100% Property 88%
Motor Misc 12% Motor 5%
PA & Health 4% Marine 6% Liability 2% Property Marine 1%
Liability
PA & health Willis Marsh Firstcity Partnership Aviation
Marine 19% Aviation 23% Marine Liability 9%
Aviation 8% Property 13% Liability 100% Miscellaneous Property 70%
PA & Health 7%
Liability 36% PA & Health 9% Marine 6%
∗ Premium figures are based on signed premiums year of account 106 Xchanging (June 2007) 107 Business classes with less than 1% are ignored 108 Xchanging (June 2007) Security classification: confidential
at-mi-2007-06-25-brief Bibliography 28
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ABA, (2007) Investing in Austria: Sectors. www.aba.gv.at
ACVR, (undated) About the ACVR. www.acvr.at
Allianz, (2007) At a Glance. www.allianz.com
Australian Government Department of Foreign Affairs and Trade, (2007) Austria Country Brief. www.dfat.gov.au
Austrian Financial Market Authority, (2006) Statistics: Insurance Undertakings. www.fma.gv.at
Austrian Insurance Association, (2007) HORA – Flood Risk Zoning. www.vvo.at
AXCO, (2006a) Market Statistics. www.axco.com
AXCO, (2006b) Non-Life Report. www.axco.com
Central Intelligence Agency, (2007) The World Factbook. www.cia.gov derStandard.at, (2007) Merkur Osiguranje Obtains the NBS Licence. http://derstandard.at
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Security classification: confidential
at-mi-2007-06-25-brief Appendix 30
Appendix
Data limitations
Reinsurance data Lloyd’s premium figures include both direct and reinsurance business. As a result, the market share figures may be slightly inflated. This is likely to be a particular problem in markets that reinsure a higher than average portion of business.
Lloyd’s data The Lloyd’s data used is Gross Signed Premiums from Xchanging as this is the best source that Lloyd’s currently has that provides consistent data at the country level over time.
The Xchanging data has been generated on a country of origin (COO) basis. This means that the data is NOT generated on the same basis as regulatory returns (FIL Codes). FIL Codes were not chosen for the purpose of this analysis as they do not take into account the physical location of the risk.
Security classification: confidential
at-mi-2007-06-25-brief