A 44.5% increase in premium income in Luxembourg’s insurance sector last year was driven mainly by Brexit relocations in the non-life sector. However the traditional mainstay for the industry, life insurance, also enjoyed a strong year with income up 18.6%.
The relative size of the non-life insurance sector doubled in Luxembourg last year. It accounted for just over 15% of the industry’s €28.1bn premium income in 2018, say the industry regulators the Insurance Commissariat (CAA). Yet by last year this share had doubled to 30% of €40.6bn total premium income.
Relocation from the UK
Brexit moves accounted for two thirds of the rise, as about a dozen non-life insurance firms relocated from the UK to Luxembourg. There was no less than a 1,153% increase in premium income due to firms moving to establish a base in the EU-27. Impact on employment in the sector has been relatively small though, with no more than a few hundred staff having moved, albeit that these people tend to be the senior decision-makers required by a headquarters office.
The likes of Standard Life, Hiscox, RSA, and Lloyds Bank shifted their booking centre to the Grand Duchy, while most of the back office work remains in the UK. Most of these companies made their move to the Luxembourg in 2018, and started to record business in the country last year. This model would persist if the final Brexit deal is relatively soft, and does little to change current free trade arrangements in financial services. However, a hard Brexit might also require back office functions to move to the EU-27.
Christian Strasser (pictured), president of the Luxembourg Insurance and Reinsurance Association (ACA), was somewhat surprised by Luxembourg’s popularity among anglophone businesses. ‘We had expected these businesses would have tended to gravitate to Ireland,’ he noted. He added the decision in 2017 of the US industry leader AIG to choose Luxembourg was probably particularly influential.
Added resilience and diversity
The policies being written by these firms are for a range of activities for corporates and individuals. For example there is protection against financing, trading and environmental risk, as well as property and accident cover. Even niche activities such as providing insurance for US military personnel working in and around Europe is now run out of the Grand Duchy.
As well as these moves representing a boost the economy, Strasser is also pleased that attracting a diverse range of businesses adds to the reservoir of know-how in the country. “Attracting a greater variety of expertise to Luxembourg will serve us well as we face future challenges,” he said. Luxembourg is a cross-border hub supplying services across Europe, and this requires close knowledge of each market’s legal, regulatory and fiscal environment. Cross-border business accounts for over 90% of the industry’s premium income. Even though the number of staff moving is relatively small, when the headquarters moves this comprises mainly high value-adding senior decision makers.
While the Brexit effect was the most remarkable change last year, the performance in the pan-European life insurance sector has also been strong by historic standards, with premium income up by nearly one-fifth. These policies are designed to help individuals and families meet personal investment, lifestyle and inheritance goals. They are useful not just for their tax efficiency, but also how they can be used by families to manage assets cross border. Brexit had little impact on this sector in Luxembourg, as the UK has generally not been a centre for these pan-European services.
Last year also saw a clear trend towards life products that are linked to investment funds. These unit-linked products offer greater risk and reward, and reported 9.7% growth last year. While this was a strong performance, it compares to the 35.6% rise in premium income for so-called guaranteed return products. Unit-linked life policies now account for 60% of total life insurance premium income last year, with guaranteed products representing most of the remainder.
More granular information about the origins of this growth has not yet been released. However, Luxembourg’s largest insurer Lombard International (whose business accounted for around one-seventh of premium income in the country last year) reported similar levels of growth as the Luxembourg market as a whole. The firm has pointed to strong performances in Italy, France, the UK and the Iberian peninsula.
Recent numbers have not been published, but historic market surveys show a sector creating around 6% of national economic value added, with the more than 8,600 people working in the sector in 2018 accounting for around 2% of the national workforce. Luxembourg is now the base for 88 insurance and 216 reinsurance companies.