The European life insurance market has suffered through 3 tough years, but it should do better in the future.[@@]

Hans Wright, a credit analyst at Standard & Poor’s Ratings Services, New York, gives that assessment in a review of the European insurance market.

The European life and property-casualty markets both reached their low points in 2002, Wright says.

“Life results and capital were negatively affected by investment losses, the consequent reduction in savings appetite, and the cost of mispriced guarantees,” Wright says.

Since 2002, “the response from industry has been encouraging,” Wright says. “Management teams have rebuilt capital, reduced costs and focused more keenly on appropriate pricing and risk selection.”`

The bigger insurers have increased their share of sales in most big European markets, giving them more power to cut operating costs and increase prices, Wright says.

This year, Wright says, long-term interest rates are still low, but stocks have been performing well, and the European life insurers that S&P rates have been doing better.

Wright argues that Europeans’ aversion to investment risk should help life insurers promote products that include performance guarantees.

“Although it is difficult to generalize, savings appetite is slowly rebuilding across the major European markets, and policyholders still favor investments with some kind of protection against investment fluctuations,” Wright says.