European Insurers: Virtues of Conservatism

EUROPE'S Insurers are taking a smug view of the problems confronting their United States counterparts. With predictions that insurance will follow savings-and-loan institutions and banks as the next US financial catastrophe, Europeans are extolling the virtues of tight government regulation. The squeeze on profits faced by US insurers result not only from two disasters last year - the East Coast's Hurricane Hugo and the San Francisco earthquake - but also from a crash of the property and junk bond markets where insurers invest chunks of their premium income. As doom-laden forecasts of insolvencies gather pace, the word is it can't happen in Europe.

``In most European countries, insurance companies include assets in their balance sheet at the lowest historic market value,'' says David Nesbit, insurance analyst at County NatWest Securities Ltd.

This practice stems from a tradition going back over a century in Germany of klarheit, wahrheit, vorsicht, or transparency, fair value and prudence, says Bernhard Fink, executive board member of Cologne-based insurer Gerling Koncern Allgemeine Versicherungs AG. European insurers have substantial hidden assets which are already making them a formidable force on the world market, he says.

Most European insurance markets are stringently regulated and include a relatively small number of companies. Only Britain, and to a lesser extent the Netherlands, operate in competitive markets similar to the US, but their high solvency requirements nip some problems in the bud.

Although investors in European insurance may be spared a US-style foreboding, insurance buyers have had to pay more in this regulated, cartelized market. The European Community has issued new directives this year allowing for insurance business to be freely transacted across borders of member states and, which the EC hopes will reduce costs.

Few US insurers are deemed financially prepared to move into Europe's post-1992 insurance market, but some European firms are looking in the opposite direction.

Nesbit calls for caution here: ``Between 1930 and 1970, the US market was the fastest growing in the world. Now not only has growth stalled but it is decidedly less profitable.''

For Spain's largest insurer, Madrid-based Corporaci'on Mapfre, the American market represents the future, says chairman and chief executive Jos'e Manuel Marinez. ``By the end of the century, the greatest part of our earnings will come from America.'' The company is targeting the US Hispanic market, with stakes in companies in Florida and Puerto Rico.