(July 30, 2013) — Icelandic insurers were able to ride out the worst of the financial crisis thanks to their investment strategy, according to data analysts Timetric.
What was their secret? Not being tied to banks, and moving their investments into government-backed securities early.
Timetric analyst Carlos Pallordet told aiCIO: “Before the outbreak of the global financial crisis, insurance companies in Iceland were already relatively more focused on government-backed securities and bank deposits with regards to investing their money.
“Just as an example, companies such as VIS Insurance began shifting its portfolio from equity securities towards government-backed securities and bank deposits as early as 2006.
“These investment strategies were a key reason for the survival of insurance companies in Iceland, coupled with the fact that insurers don’t suffer customer runs or liquidity crisis in the way banks do.”
In many countries, insurance companies have typically tied up with banks or become part of large banking groups. However, Icelandic insurers and banks were two separate entities in the run up to the crisis, helping them to avoid the adverse effects of the banking sector collapse in 2008.
Icelandic insurers grew at a compound annual growth rate of 5.2% to 2012 in terms of gross written premium. The industry increased from ISK37.7 billion (US$456.0 million) in 2008 to ISK46.2 billion (US$370.5 million) in 2012, and is expected to reach ISK60.4 billion (US$484.3 million) in 2017.
The country is approaching a critical time in its history, as it waits to find out whether it can enter the European Union: a decision which could further strengthen its insurance industry.
There are 13 insurance companies in Iceland, and the top four life insurance companies account for a combined segment share of 95% in 2011. In addition, the top three non-life insurers accounted for over 90% of their segment’s total written premium.
Joining the EU is likely to bring new insurers into the country and strengthen the industry further, providing competition for the domestic insurers.
Acquisitions are also likely, as the expected implementation of Solvency II will force smaller players to raise funds through partial sales of stakes, forming joint ventures, or being acquired by larger entities to meet the minimum capital requirements.