The European life and nonlife insurance markets felt the effects of the global financial crisis in different ways, as the former suffered big investment losses and lower premium income while the latter held its ground.

Miles Trotter, general manager with A.M. Best Europe, told delegates at A.M. Best's 2009 Review & Preview--Europe that the nonlife insurance market has been resilient in the face of what are "difficult trading conditions," with investment demand dramatically reduced and stagnant demand for many nonlife insurance products.

Capital levels have proven to be resilient as well, he said, with 2008 figures back up to 2004 levels.

For nonlife reinsurance, Trotter compared the costs of Windstorm Klaus, which hit France in January 2009, with those from Windstorm Martin, which hit in December 1999. He pointed out that Klaus hit at a time when insurance company retentions were up to 2.8 times above those in 1999, with reinsurance costs quadrupling and the upper limit of reinsurance rising by 3.8 times. Trotter said this showed that there is now more emphasis on protection for low-frequency extreme events, along with the influence of Solvency II capital requirements related to such events, as well as a focus on value for money.

According to Trotter, investment portfolios are now much more conservative, with the percentage of equities to total investments for the top five European reinsurers falling from just less than 40% in 1999 to less than 10% in 2008.

He said inflation is a medium-term issue for the market, with a high level of awareness in the insurance industry at the moment.

Looking at Europe's life insurance market, A.M. Best Europe general manager Vasilis Katsipis said life insurers are under pressure, with a 20% decline in life gross written premiums in 2008.

Looking at the life market in the United Kingdom, which makes up 35% of the European market, Katsipis said the top line had been impacted by a decline in equity markets and consumer confidence. "The market in the U.K. has been dependent on investment income for years," he added. "But in 2008, these results didn't happen."

Katsipis said unrealized losses had been substantial in 2008, and that the year had also seen a steady de-risking of investments, with the investment mix becoming far more conservative than at any time over the previous three years.

With the reinsurance of life business increasing in importance, Katsipis said the situation is very different for insurers and reinsurers. The former are seeing that demand for capital-light products is unlikely to return over the next year, while the latter sees demand for life reinsurance already increasing.