Press Article: Standard Hydor featured in Insurance Day article on the Nordic region
28 February 2018
The Nordic insurance markets of Denmark, Finland, Iceland, Norway and Sweden were hard hit by the regional banking and global financial crisis nearly 10 years ago.
A significant number of players, including foreign insurance groups, exited the market and the region’s highly regarded monoline marine underwriters, staggering under the weight of heavy cargo, hull and machinery claims and investment losses, lost a great deal of business to the London market.
But much has changed since then. On the back of a series of financial services sector reforms, including the strengthening of the insurance regulatory environment and a focus on insurance education and training which is unmatched anywhere else in Europe, the region has staged a strong recovery.
Not only are Nordic marine insurers back with vengeance and providing stiff competition to the London market, but the region itself has emerged as one of the most attractive insurance markets in Europe, particularly for corporate risk and specialty lines business which is currently being served by a combination of local property and casualty insurers and a few established international insurers operating directly in the market.
"Nordic marine insurers have reacted to the crash by expanding their product offerings to capture a more diverse customer base and there has been a strong adoption of increased digitalisation to improve cost efficiencies, which has improved the attractiveness of their products to buyers," says Tom Murphy, global client solutions executive at Axco Insurance Information Services.
However, these days, the barriers to entry into the insurance markets of the Nordic region, particularly for foreign players, are high as a result of the reforms and the sheer cost of gaining the trust and loyalty of customers who have a strong preference for established local brands. But this is also part of the region’s attraction.
According to a recent report on the region by Moody’s, the difficulty in accessing the market has created relatively stable competitive environment with limited pressure from new entrants. So much so, the price wars seen in other European primary insurance markets have been largely absent in the Nordic region.
The Nordic insurance market is dominated by around 10 major local multiline insurers, who all distribute their products via their own salesforce and partly via brokers when it comes to the upper segment of the market.
"The local players traditionally have a strong presence in the market and customers tend to show relatively high loyalty, making entry barriers for foreign players seem high," says Peter Hecht-Hansen, chief executive, Nordic Countries at Allianz Global Corporate & Specialty (AGCS).
The international players, including AGCS, which entered the Nordic market 10 years ago, mainly compete in the upper part of the corporate segment. AGCS provides cover to large local corporates with international insurance needs. But this part of the market has become highly competitive and premium rates have been under consistent pressure for several years now.
"The main challenge for players in the market is to move towards digitalisation. The market demands smart and relevant digital solutions, and insurers are forced to come up with answers in order to remain relevant and competitive. The local players have all invested heavily in this development and the private market, as well as parts of the corporate market, is already serviced via digital solutions today," Hecht-Hansen adds.
But new opportunities are emerging, especially for Lloyd’s and London market companies, as some of the regional players undergo another round of consolidation and restructuring in response to the adverse conditions in the global marine and energy markets.
Liv Irene Loland, managing director of Standard Hydor, the joint venture established two years ago between the Standard Club and the Oslo-based marine insurance provider, Hydor, says the Nordic market learnt a number of important lessons when several high profile local players such as Bluewater and Nemi disappeared during the financial crisis.
"Recently, we have seen the market consolidate with Skuld buying the renewal rights for SMA’s hull and machinery portfolio. NHC and Gard have also reduced the size of their marine hull and energy books. All these players are using the London market for reinsurance," Loland says
Loland believes the Norwegian insurance market is reshaping now with Lloyd’s syndicates gaining more direct access to the market through local MGAs.
Similarly, while the Nordic markets are pretty self-sufficient in terms of underwriting most marine risks, other specialty lines and corporate risks, large aviation and energy risks located in these territories will be placed directly in the London market.
However, the objective for London market insurers and brokers is to gain access to Nordic business which the London market is unlikely to see.
Robert Dorey, active underwriter at Standard Syndicate 1884, referring to the Standard Club's partnership with Hydor, says the key to building a successful underwriting presence in the Nordic region is to have a local market presence, be able to speak the language and to be embedded in the local insurance community.
"The other key is to be able to offer access to sufficient London market capacity and write line sizes that attract risks that would otherwise not have come to London," he says.
"The local marine and energy markets have seen some contraction since the collapse in the oil price. However, local insurers have been able to maintain and even increase their market share. The advantage that Lloyd's brings to the market, through MGAs, is its financial strength and depth of insurance capability," Dorey says.
Dorey notes that the Nordic countries have a great deal of expertise and talent in the marine and energy sectors. But Syndicate 1884 goes beyond what is available locally and offers marine and offshore operators access to the additional covers they need to protect their businesses.
These, Dorey says, include cyber, political risk, trade credit, political violence and terror insurance. "We see huge potential to develop further in the Nordic markets, particularly by offering access to lines which are not available in local markets," he adds.
As an indication of how palpable the market’s sense of the opportunities in the Nordic region are, there has been plenty of investment in the region over the last six months.
Start-up MGA platform Volante Global launched an MGA based in Sweden to target property, liability, financial lines and commercial combined insurance solutions backed by London market capacity. Insurer QBE appointed a new manager for the Nordics and comprehensively restructured its property, casualty lines and specialty lines offerings in the region.
Meanwhile, broker Arthur J. Gallagher has expanded its footprint and broadened its capabilities in the region with the acquisition of the Swedish based broker, Nordic Försäkring & Riskhantering; and Towergate Underwriting has launched an MGA specialising in property, casualty, financial lines, engineering and energy classes in the Nordic region.
In terms of exploiting the potential synergies between the London market and the Nordic region, there is also investment going the other way with Finnish marine insurer, Allandia, acquiring a 44.48% in Lloyd’s coverholder and specialist marine insurer, Nordic Marine Insurance in January this year.
But there is also a certain volatility associated with Nordic business, particularly in the marine sector. Two or three years ago, the market suffered an unusually large number (13) of marine hull and machinery losses (in excess of $10m), with many of these constructive or actual total losses, according to the Central Union of Marine Underwriters (Cefor).
"Of course, with energy and marine insurance, there will always be a certain degree of volatility as has been evident in recent years.
"But looking at the overall results over a longer period, we see healthy results and combined ratios mostly in the eighties for long-term players in the Nordic market," says Loland of Standard Hydor.
"For the London market to be successful, it is important to control customer relationships through local partnerships and not be a provider of commodity reinsurance," she notes.
Murphy of Axco says there are many attractive features of the Nordic market that players in London and elsewhere can look to as a sign of strong growth in the future.
"There is strong regulatory environment which is valued by a regional industry prone to volatility. They also benefit from encouraging policy driven from governments in the region."
For instance, in Norway, the government has identified the ‘greener’ nature of shipping compared with land transport and is pushing to move 30% of cargo carried overland to the sea, which is expected to boost the marine cargo market.
"These are testing times for many marine markets but the stable nature of the Nordic industry is likely to convince many that they’ll ride the storm better than most."
Orginally posted on Insurance Day.