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European bancassurance benchmark Corinne Legrand August 2008 Milliman Research Report European bancassurance benchmark Prepared by: Corinne Legrand August 2008

European Bancassurance Benchmark 08-01-08

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  • European bancassurance benchmarkCorinne Legrand

    August 2008

    Milliman Research Report

    European bancassurance benchmark

    Prepared by:Corinne Legrand

    August 2008

  • European bancassurance benchmarkCorinne Legrand

    August 2008

  • Milliman Research Report

    Contents

    ExECutivE SuMMaRy 2

    Report objective 2Methodology and structure of the report 2Key findings 2

    BaCKgRound data on EuRopEan BanCaSSuRanCE 4

    Bancassurance: a major distribution channel in Europe 4Bancassurance: still seen as a key development opportunity in the European insurance industry 5

    BanCaSSuRERS Can BuiLd on an ExCLuSivE diStRiBution nEtwoRK But thE pRoduCtivity of thE BRanCh nEtwoRK vaRiES widELy 6

    average productivity per branch varies significantly across countries 6factors driving these differences 6post office productivity 8

    BanCaSSuRERS havE aCCESS to a CaptivE CLiEnt BaSE But thE aBiLity to CRoSS-SELL inSuRanCE pRoduCtS to thE BanKS CLiEntS vaRiES widELy 9

    penetration rates 9how are these penetration rates achieved? 9how can penetration rates be improved? 10

    aCquiSition ExpEnSES 13

    Commissions 13analysis by type of commissions 13non-commission acquisition expenses 14

    adMiniStRation ExpEnSES 15

    administration expenses ratio 15Staff ratio 16

    MEthodoLogy 17

    LiSt of CoMpaniES anaLySEd in thE SuRvEy 19

  • Milliman Research Report

    2European bancassurance benchmarkCorinne Legrand

    August 2008

    exeCutive summary

    Report objectiveThe key success factors for European bancassurers are usually measured by commercial efficiency and low cost base.

    The objective of this Milliman analysis is to set up a benchmark of commercial productivity and expense levels across leading bancassurers in Europe. It focuses on bancassurance-dominated markets France, Italy, Spain, and Portugal, and selected pure bancassurers in Belgium, Germany, and the United Kingdom.

    Our analysis provides essential information to:

    bancassurers present in these markets, to help them assess their performance and understand how it can be improved

    traditional insurers seeking to develop bancassurance distribution, to help them assess the performance, development potential, and value of possible bancassurance targets

    insurers in developing bancassurance markets around the world, to help them assess development opportunities and set up performance benchmarks

    In this report, we present a summary of the results of the Milliman benchmark analysis and explain the main differences by country, by business model, and by business line.

    Methodology and structure of the reportFor this report, we analysed publicly available financial and commercial data for a sample of 35 bancassurers across Europe. The list of companies is shown in the appendix.

    We then derived from this analysis a number of benchmark indicators:

    productivity per branch customer penetration non-commission acquisition expenses as a percentage of new business Annual Premium Equivalent (APE)entry commissions as a percentage of new business APE administration expenses as a percentage of reserves

    Building on our in-depth knowledge of these bancassurance markets, we proceeded to an analysis of these benchmark indicators to explain the main differences by country, business model, and business line.

    Key findingsBancassurance commercial productivity, measured as premiums per branch, varies largely across countries. The highest productivity levels are reached in mature life insurance markets in which life insurance products are tax advantaged compared to other forms of savings products, e.g. in France (2.5 million per branch on average) and Belgium (2.38 million). In countries such as Italy, where life insurance products do not benefit from a favourable tax treatment compared to other savings products, the commercial productivity depends largely on the level of priority assigned to life insurance business by the bank and can vary from one to ten.

    Reasonably successful bancassurers in mature life insurance markets can achieve penetration rates of 15% to 25% of the banks customer base by selling fairly standardised products to their mass-market customers and cross-selling life insurance risk products with loans and mortgages. Bancassurers can further increase their penetration rate up to 35% and more by expanding their life insurance product offerings to their affluent customers and by expanding

    the objective of this Milliman analysis is to set up a benchmark of commercial productivity and expense levels across leading bancassurers in Europe.

  • Milliman Research Report

    3European bancassurance benchmarkCorinne Legrand

    August 2008

    their insurance product range to new product lines, e.g. non-credit-related risk products and non-life insurance products.

    Commissions represent between 82% and 94% of acquisition expenses. Average commissions- to-new-business APE ratios are around 35% in Italy, Spain, and Portugal, and significantly higher in France (47%). The level of non-commission acquisition expenses varies largely by country from 1.9% of new business APE in Portugal to 7.7% in Italy. These differences can be driven by different compliance requirements across countries and by different structures of sales support implemented by companies.

    The level of administration costs varies significantly across countries, from 0.08% of reserves in France to 0.23% in Germany. This ratio is largely dependent on the size of companies and can be as low as 0.04% for the largest bancassurers. The business model implemented joint-venture or fully owned companies has limited impact, reflecting the fact that the level of IT and administration integration between the bank and the insurance company is generally comparable under both models.

  • Milliman Research Report

    4European bancassurance benchmarkCorinne Legrand

    August 2008

    BaCkground data on european BanCassuranCe

    Bancassurance: a major distribution channel in EuropeBancassurance is a major distribution channel in Europe, accounting for over 60% of individual life insurance premiums in France, Italy, Portugal, and Spain, and over 50% in Belgium. Bancassurance is less developed in the United Kingdom and Germany.

    exhiBit 1: BanCassuranCe in main european individual life insuranCe markets

    Source: Milliman analysis2006 data

    In France, Italy, Spain, Portugal, and Belgium, bancassurers operate under a fully integrated model in which:

    Bancassurance companies are fully or partly owned by a bank.

    Bancassurance companies have an exclusive distribution agreement with their parent bank.

    Bancassurance products are fully integrated in the banks product range and are sold by branch staff along with banking products.

    In Germany and the United Kingdom, bancassurance tends to be less integrated:

    Fully owned bancassurance companies and joint ventures exist, but banks frequently operate through pure distribution agreements.

    Distribution agreements are often on an exclusive basis in Germany, but in the United Kingdom multi-tied bancassurance distribution is developing.

    Life insurance products are often not sold by branch staff directly, but are referred to insurance specialists. In Germany, this can be because insurance products tend to be more complex than in southern Europe. In the United Kingdom, this is due to the regulation under which investment products can be sold only by qualified financial advisers.

    218.79

    125.9

    63.27 60.37

    19.07 16.048.60

    0

    50

    100

    150

    200

    250

    United Kingdom France Italy Germany Spain Belgium Portugal0.00%

    10.00%

    20.00%

    30.00%

    40.00%

    50.00%

    60.00%

    70.00%

    80.00%

    Individual premiums (m) Bancassurance market share (%)

    Bancassurance is a major distribution channel in Europe, accounting for over 60% of individual life insurance premiums in france, italy, portugal, and Spain.

  • Milliman Research Report

    5European bancassurance benchmarkCorinne Legrand

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    The main competitive advantages of bancassurance are often seen as:

    the capacity to achieve high business volumes by cross-selling simple products to the banks captive customer base

    the marginal cost of distribution through an existing branch network

    the operational cost efficiency of a close integration of systems and processes between the bank and the insurance company

    This report gives a view on these performance indicators and how they can vary by country and by business model.

    Bancassurance: still seen as a key development opportunity in the European insurance industryBancassurance has generated a significant volume of mergers and acquisitions (M&A) activity in Europe in 2007 and the first months of 2008. Both traditional insurers and bancassurers have developed their bancassurance activity by acquiring 50% stakes in bancassurance companies previously 100% owned by banks. By acquiring bancassurance ventures, traditional insurers gain access to well-established distribution networks and customer bases, allowing them to gain market share quickly.

    Traditional insurers tend to expand into bancassurance for one of two reasons:

    to diversifiy their distribution strategy and gain market share in the countries where they are already present (This was the case with AXA with the acquisition of 50% of Montepaschi Vita in Italy in 2007, and Zurich Financial Services acquisition in Spain of 50% of Caixa Sabadells life insurance subsidiary, CaixaSabadell Vida, in 2008.)

    to expand internationally (This was the case with Groupama with the acquisition of 100% of OTP Garancia in Hungary in 2007.)

    Well-established bancassurers were also active in the M&A drive to develop internationally by exporting their successful business model abroad. Credit Agricole, for example, acquired 50% and management control of the life and non-life bancassurance subsidiaries of the Espirito Santo Group in Portugal in 2006.

    For the valuation of these bancassurance deals, understanding the development potential of the bancassurance company is key. The ability to benchmark the companys productivity per branch and bank customer-base penetration against successful competitors is an element with which to assess a global growth potential. Benchmarking the bancassurance business mix and profitability by business line against competitors is also essential for the definition of the business plan.

  • Milliman Research Report

    6European bancassurance benchmarkCorinne Legrand

    August 2008

    BanCassurers Can Build on an exClusive

    distriBution network But the produCtivity of the

    BranCh network varies widely

    average productivity per branch varies significantly across countriesIn the typical southern Europe bancassurance models, bancassurance companies are owned (fully or partly) by a bank and have an exclusive distribution agreement with their parent bank. Bancassurance companies thus have access to an established branch network and to a captive customer base. The life insurance premiums per branch ratio is a good indicator of the commercial performance of the branch network. Milliman analysis shows that this indicator varies widely across countries.

    exhiBit 2: average life insuranCe premiums per BranCh * (m)

    * excluding post office distribution Source: Milliman analysis2006 for france, Belgium, italy, Spain, and germany; 2007 for portugal

    factors driving these differencesThe first factor explaining these differences is the general level of development of life insurance markets and banking sectors in these countries. In Spain, for example, the life insurance market is relatively underdeveloped compared to other European markets. At the same time, Spain has one of the highest bank-branch densities in Europe.

    exhiBit 3: life insuranCe density and density of Bank BranCh networks in franCe and

    spain

    Country life insuranCe density Bank BranCh density (numBer of

    (premiums per Capita in $us) BranChes per 1,000 inhaBitants) *

    spain 651.0 0.97

    franCe 2,922.5 0.43

    * excluding post officeSource: Sigma Swiss Re, Banque de france, and Banco de Espaa2006 data

    3,00

    2,50

    2,00

    1,50

    1,00

    0,50

    0,00

    France Belgium Italy Portugal Spain Germany

    2,51

    2,38

    1,731,66

    0,45

    0,32

    in Spain, for example, the life insurance market is relatively underdeveloped compared to other European markets. at the same time, Spain has one of the highest bank-branch densities in Europe.

  • Milliman Research Report

    7European bancassurance benchmarkCorinne Legrand

    August 2008

    A second factor driving these differences is the nature of life insurance business. In France and Belgium, individual life insurance products are basically tax-advantaged medium-term savings products, benefiting from tax exemption on interest and capital gains when policies are held for a minimum duration.

    This means that life insurance products are by nature very similar to the investment and savings products sold by banks and hence fairly easy for bank advisers to sell. Furthermore, the tax advantages mean that bank advisers can encourage their clients to shift their money from other savings products to life insurance products.

    In France, for example, the 2006 market growth was strongly driven by substantial transfers from Plans Epargne Logement (PEL), which are regulated savings products that allow savings for property acquisition under favourable conditions. On 1 January 2006, the interest earned on PEL in force for over 10 or 12 years became subject to income tax. As a consequence, a large number of PEL holders transferred their PEL to life insurance policies. It is estimated that 11 billion were transferred from PEL to life insurance products in 2006, generating a 9% life insurance market growth (out of a total 17% market growth in 2006). These transfers benefited mainly the bancassurance distributors because banks were able to target the PEL holders in their customer base.

    The situation in Italy is different because life insurance does not benefit from any tax advantages over other forms of saving products. The life insurance volumes produced by banks are therefore very dependent on the commercial priorities defined by each bank. This results in large differences in the commercial performance of banks. As shown in the graph below, the commercial performance of banks varies much more in Italy from 0.45 million to 4.32 million per branch per year than in France, Spain, or Portugal.

    exhiBit 4: life insuranCe premiums per BranCh for sample BanCassurers in franCe,

    italy. spain, and portugal (m)

    Source: Milliman analysis2006 for france, italy, and Spain; 2007 for portugal

    The performance of Italian banks can also vary significantly year on year. In recent years, the commercial priorities of banks and in particular their focus or lack of focus on bancassurance may have been affected in a major way by M&A and restructuring activities. An example of this is a bancassurer involved in restructuring the ownership of its bancassurance operation in 2006, which saw the commercial performance per branch drop from 0.93 million per branch in 2005 to 0.58 million in 2006.

    France Italy Spain Portugal

    5,00

    4,50

    4,00

    3,50

    3,00

    2,50

    2,00

    1,50

    1,00

    0,50

    0,00

    France Italy

    Spain

    Portugal

  • Milliman Research Report

    8European bancassurance benchmarkCorinne Legrand

    August 2008

    post office productivityFinally, it is worth making a comment on post offices, which are more and more involved in the distribution of financial and life insurance products.

    Poste Vita ranked third in the Italian bancassurance market in 2006 and became the leading Italian bancassurer in 2007.

    La Banque Postale ranks second in the French bancassurance market behind Credit Agricole.

    These distributors can build on extremely large branch networks but with a fairly low number of bank advisers per branch and a less captive and often less wealthy customer base. As a result, the productivity of post office branches is lower than the average productivity of retail banks and savings banks.

    exhiBit 5: life insuranCe premiums per BranCh for post offiCes in franCe and italy

    Country numBer of BranChes life insuranCe premiums per BranCh (m)

    franCe 17,000 0.71

    italy 11,800 0.51

    Source: Milliman analysis2006 data

  • Milliman Research Report

    9European bancassurance benchmarkCorinne Legrand

    August 2008

    BanCassurers have aCCess to a Captive Client Base

    But the aBility to Cross-sell insuranCe produCts to

    the Banks Clients varies widely

    penetration ratesTwo ratios can be used to measure bancassurance penetration. The first indicator is the percentage of the banks clients that holds a life insurance policy with its bancassurance company. The second indicator is the ratio between the number of life insurance policies and the number of bank customers.

    For mature bancassurers focusing primarily on selling standardised savings and risk products to the banks mass-market customers, the first ratio is typically in the 15%25% range and the second, in the 20%30% range.

    These represent good levels of penetration for bancassurers that take a typical commercial approach in selling standardised and fairly simple products to the banks mass-market customers.

    exhiBit 6: average BanCassuranCe penetration in franCe and italy

    Source: Milliman analysis-2006 data

    how are these penetration rates achieved?European bancassurers typically target two types of customers:

    the banks mass-market customers, with an offer of fairly simple life savings and pension products the banks customers taking loans and mortgages with an offer of credit-related risk products

    high penetration rates can be achieved by promoting simple life insurance savings products aimed at mass-market customers.Successful bancassurers have initially developed fairly standardised savings products aimed at their mass-market customers. For the branch staff of banks who were not life insurance specialists and were given only fairly limited life insurance training, products had to be simple to sell. And they had to be easy to understand for clients because only limited advice could be provided by the branch staff.

    32,98%

    13,70%

    37,15%

    20,93%

    0,00%

    5,00%

    10,00%

    15,00%

    20,00%

    25,00%

    30,00%

    35,00%

    40,00%

    France Ita ly

    Bancassurance clients / Bank clients Bancassurance policies / Bank clients

  • Milliman Research Report

    10European bancassurance benchmarkCorinne Legrand

    August 2008

    Bancassurers have therefore developed a strong presence in the traditional guaranteed business and in the index-linked business, which are easy to sell based on the guaranteed or expected returns. They have also rapidly and successfully entered the unit-linked market with a product offering usually characterised by flexible premium payment, a narrow range of in-house funds typically between 3 and 10 funds with a focus on risk-profile funds rather than pure investment funds and a minimum insurance content.

    high penetration rates can be achieved by cross-selling credit-related insurance products with loans and mortgagesHigh penetration rates can also be fairly easily achieved by bancassurers offering risk products such as creditor insurance products linked to personal loans and mortgages.

    In France, subscribing a creditor insurance policy is compulsory in order to be granted a mortgage; it does not necessarily have to be subscribed with the bank, but that is generally the case. In Spain, bancassurers actively cross-sell creditor insurance as well as home insurance with mortgages. In Italy, a number of bancassurers are only starting to develop their creditor insurance offering, but those already present in this business are achieving high penetration rates.

    In the table below, we provide cross-selling rates achieved by leading banks on personal loans and mortgages.

    exhiBit 7: examples of Cross-selling rates aChieved By leading Banks on personal

    loans and mortgages

    Country produCts Cross-selling rate

    spain Creditor insuranCe / mortgages 45%

    italy Creditor insuranCe / mortgages 50%

    franCe Creditor insuranCe / personal loans and mortgages 80%

    Belgium Creditor insuranCe / mortgages 66%

    spain Creditor insuranCe / personal loans 73%

    italy Creditor insuranCe / personal loans 99%

    italy Creditor insuranCe / Consumer goods loans 44%

    Source: Milliman analysis2006 data

    how can penetration rates be improved?Penetration rates can be improved in two main ways:

    by targeting new customer segments, in particular the banks affluent and high-net- worth customers

    by expanding the product offer to new insurance lines, e.g. non-credit-related risk products and non-life insurance products.

  • Milliman Research Report

    11European bancassurance benchmarkCorinne Legrand

    August 2008

    exhiBit 8: how Can penetration rates Be improved?

    Source: Milliman analysis

    penetration rates can be improved by targeting new customer segments One of the key issues for bancassurers is to keep expanding once they have achieved a high level of penetration in the banks mass-market customer base. In practice, this involves being able to better target other customer segments, in particular the affluent and upper affluent segments, by:

    designing a new product range aimed at the banks affluent and upper-affluent customers

    developing distribution through the banks personal banking and private banking advisers, which implies in particular developing new sales and marketing tools

    The largest French bancassurers have actively developed product offers aimed at the banks affluent and upper affluent customers in recent years. In particular, they have developed sophisticated multi-manager unit-linked policies comparable to those sold by independent financial advisers.

    Bancassurers that have been able to implement such strategies have achieved significantly higher penetration rates than those given above. The percentage of a banks clients holding a life insurance policy with its bancassurance company can reach 35%, and the average number of policies per client can reach 1.5 to 2.0.

    penetration rates can be improved by expanding the insurance offerIn recent years, successful bancassurers have been able to expand their product range to new product lines, in particular non-credit-related risk products and non-life insurance products.

    The most successful non-life insurance development areas are standardised products with limited underwriting, in particular low-premium products that can be sold using mass-marketing techniques (for example, travel insurance or legal-expenses insurance) and products that can be packaged with banking products (for example, home insurance with mortgages).

    Non-life insurance products

    Primary bancassurance target

    Expand into new business lines

    Target new customer segments

    Mass market Affluent High net worth

    Savings and pensions

    Credit-related life-risk products

    Non-credit-related life-risk products

    in recent years, successful bancassurers have been able to expand their product range to new product lines, in particular non-credit-related risk products and non-life insurance products.

  • Milliman Research Report

    12European bancassurance benchmarkCorinne Legrand

    August 2008

    exhiBit 9: suCCessful development areas in european

    non-life insuranCe BanCassuranCe

    Source: Milliman analysis

    LOW

    HIGHLOW

    Standardised products with limited underwriting

    More complex products with higher insurance content

    Non-bank-related products

    Student insurance

    Health

    Home

    Motor

    Can be packaged with banking products

    Directly linked to banking products

    Accident cover

    Creditor insuranceLegal expenses

    Travel insurance

  • Milliman Research Report

    13European bancassurance benchmarkCorinne Legrand

    August 2008

    aCquisition expenses

    Acquisition expenses are split into two categories: non-commission acquisition expenses and commissions, including initial commissions and trail commissions. Commissions represent between 82% of acquisition expenses in Italy and 94% in Portugal.

    In this section, we focus on France, Italy, Spain, and Portugal, for which we are able to analyse each of these items separately.

    CommissionsAverage commissions-to-new-business APE ratios are fairly similar in Portugal, Italy, and Spain at around 35%. However, they vary widely across companies in each country.

    The average commission-to-new-business APE ratio is significantly higher in France. As explained below, the fairly high ratio in France might partly result from the high level of trail commissions paid to distributors.

    exhiBit 10: Commissions / new Business ape

    Source: Milliman analysis2006 data for france, italy, and Spain; 2007 data for portugal

    analysis by type of commissionsThe data available for France allow us to analyse the split of total commissions between entry commissions and trail commissions.

    In a typical bancassurance product, entry commissions are paid at inception and are defined as a percentage of the initial premium paid and then subsequently of additional premiums paid.

    Trail commissions are paid annually and are fund-based commissions. The level of trail commissions depends on the level of policy annual-management charges and, in the case of unit-linked products, on the level of rebates received from asset managers on funds. As a result, trail commissions for unit-linked products generally vary by fund category and, in the case of multi-manager products, by fund manager.

    It is worth noting that disclosure requirements are currently more limited in France than in other countries, such as Italy. Companies currently have limited disclosure requirements regarding the level

    32,79%

    47,28%

    35,51% 36,13%

    9,96%

    33,06%

    24,13%

    19,00%

    67,58%

    54,46%

    44,12%

    84,00%

    0,00%

    10,00%

    20,00%

    30,00%

    40,00%

    50,00%

    60,00%

    70,00%

    80,00%

    90,00%

    Portugal France Spain Ita ly

    Average Minimum Maximum

    average commissions-to- new-business apE ratios are fairly similar in portugal, italy, and Spain at around 35%. however, they vary widely across companies in each country.

  • Milliman Research Report

    14European bancassurance benchmarkCorinne Legrand

    August 2008

    of charges taken on underlying funds. They do not have any obligation to disclose the levels of rebates received from asset managers nor to allocate all or any part of such rebates to policyholders. This allows companies to use these rebates to pay fairly high trail commissions to distributors. However, customer and regulatory pressures could force companies to increase the level of transparency in the future, as has already been the case in other European countries.

    The entry and trail commissions are paid by the bancassurer to the bank. Depending on the banks commercial incentive system, they can then be partly paid to the bank advisers as commissions or as bonuses linked to the commercial objectives.

    On average for the French companies analysed, entry commissions account for 49.7% of total commissions, varying between 30% and 66% depending on companies. Trail commissions account for 50.3%.

    Entry commissions represent on average 23.5% of new business APE and trail commissions 0.35% of reserves.

    non-commission acquisition expensesThe non-commission acquisition-expenses-to-new-business APE vary significantly across countries. They also vary largely across companies in each country.

    exhiBit 11: non-Commission aCquisition expenses / new Business ape

    Source: Milliman analysis2006 data for france, italy, and Spain; 2007 data for portugal

    The differences in the level of non-commission acquisition expenses could be linked to a number of factors:

    At country level, the differences could be driven by the level of compliance requirements. In Italy, for example, the compliance requirements, in terms of insurance-adviser training and disclosure to customers, are more extensive than in other European countries.

    At company level, the differences might come from the structure of the sales support to bancassurance advisers and from the agreed split of commercial expenses such as marketing, communication, and adviser training between the bank and the insurance company.

    1,91%

    4,28% 4,29%

    7,75%

    0,58% 0,41%

    2,72%

    1,00%

    2,62%

    5,85% 5,73%

    17,00%

    0,00%

    2,00%

    4,00%

    6,00%

    8,00%

    10,00%

    12,00%

    14,00%

    16,00%

    18,00%

    Portugal France Spain Ita ly

    Average Minimum Maximum

  • Milliman Research Report

    15European bancassurance benchmarkCorinne Legrand

    August 2008

    administration expenses

    administration expenses ratioThe operational efficiency of bancassurers can be assessed through the analysis of the ratio of average administration expenses to reserves. This ratio varies significantly across Europe, varying between 0.08% on average for bancassurers in France and 0.23% on average for bancassurers in Germany.

    exhiBit 12: average administration expenses / reserves ratio in franCe, italy, spain,

    and germany

    Source: Milliman analysis2006 data

    This ratio is to a large extent dependent on the size of the companies. In France, for example, this ratio can be as low as 0.04% for the largest bancassurers and can reach 0.32% for smaller companies.

    The graph below shows some correlation between the size of the reserves and the administration-expenses-to-reserves ratios for sample Italian bancassurers

    exhiBit 13: reserves and administration expenses / reserves ratio for sample

    italian BanCassurers

    Source: Milliman analysis2006 data

    0,25%

    0,20%

    0,15%

    0,10%

    0,05%

    0,00%

    France Spain Italy Germany

    0,08%

    0,09%

    0,14%

    0,23%

    0.00%

    0.05%

    0.10%

    0.15%

    0.20%

    0.25%

    0.30%

    0.35%

    0.40%

    0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

    Reserves (m)

    Adm

    exp

    ense

    s /

    rese

    rves

  • Milliman Research Report

    16European bancassurance benchmarkCorinne Legrand

    August 2008

    The business model implemented full ownership or joint venture does not seem to have any significant impact on the administrative-expenses-to-reserves ratio. This reflects the fact that the level of integration of IT systems and processes between the bank and the bancassurance company, a strong driver behind the operational efficiency of European bancassurers, is relatively similar under both business models.

    Staff ratioAnother way to assess the operational efficiency of bancassurers is by analysing the number of policies per staff. This ratio makes sense only when the bancassurance company is a fully operational company. This is often not the case for joint ventures, which can operate with limited (or no) staff and most (or all) services provided by the parent insurance company. We have therefore carried out this analysis only for fully owned bancassurance companies.

    This analysis shows very large differences across companies, with nearly 19,000 policies per staff in the most efficient company and around 2,000 to 3,000 in the less efficient companies. Companies with over 4,000 policies per staff have administrative-expenses-to-reserves ratio under 0.05%, while companies with under 4,000 policies per staff have administrative-expenses-to-reserves ratios over 0.15%.

    exhiBit 14: numBer of poliCies / staff and administration expenses / reserves ratio

    for sample european BanCassurers

    Company numBer of poliCies per staff (,000) administration expenses / reserves

    franCe 18,85 0.04%

    franCe 5.86 0.05%

    spain 4.29 0.05%

    spain 3.56 0.41%

    germany 3.11 0.25%

    franCe 2.45 0.16%

    franCe 2.2 0.32%

    Source: Milliman analysis2006 data

    this analysis shows very large differences across companies, with nearly 19,000 policies per staff in the most efficient company and around 2,000 to 3,000 in the less efficient companies.

  • Milliman Research Report

    17European bancassurance benchmarkCorinne Legrand

    August 2008

    methodology

    This research is based on our knowledge of bancassurance markets in Europe and on publicly available information published by companies primarily annual reports, presentations, and press releases.

    We have defined a number of indicators to measure bancassurers productivity, commercial efficiency, administrative efficiency, and profitability:

    productivity per branch : We defined this as premiums distributed through the bancassurance channel divided by the number of bank branches. All the companies analysed in this report are pure bancassurers distributing primarily through bank branches, although a minor part of premium income can be generated by other channels, e.g. financial advisers or direct. Unless some detail on the distribution mix was available, we have assumed that 100% of premiums were through bancassurance.

    Customer penetration : We calculated two ratios. The first is the number of insurance customers to the number of bank clients, which measures the bancassurers penetration in the banks customer base. The second is the number of insurance policies to the number of bank clients, which measures the customer penetration and the equipment rate.

    acquisition expenses : We aimed to split total acquisition expenses into non-commission acquisition expenses and commissions, and to analyse separately the non-commission acquisition-expenses-to-new-business APE and commissions-to-new-business APE ratios. When this split was not available in the companies annual accounts, we made estimates where possible.

    administration expenses : We defined these as administration expenses divided by reserves.

    Staff ratio : We calculated two ratios: number of in-force insurance policies to staff number and reserves to staff number.

    For consistency, we used 2006 data for all bancassurance companies in France, Germany, Italy, Spain, and the United Kingdom because 2007 annual accounts were not yet available for all companies. Information on banks and on the relationship between the bank and the bancassurer is also based on the 2006 situation. It is worth pointing out, however, that due to intensive M&A activity in the European banking industry and significant restructuring of bancassurance operations in 2007, the structure of a number of bancassurance operations changed in 2007, in particular in Italy. This is shown in the appendix listing the companies surveyed.

    We used 2007 data for Portugal, as these were available for all companies.

    It has not been possible to calculate all ratios for all companies. In a number of cases, the publicly available information was not sufficient to calculate or estimate the indicators.

    notes on indicators

    new business apEAnnual reports in France, Spain, and Italy generally provide only premiums data and do not provide new-business premiums or new-business APE data. For these companies, we estimated new-business APE as 10% of premiums.

    acquisition and administration expensesIn French annual accounts, commissions are split into entry commissions, which are included in acquisition expenses, and trail commissions, which are included in administration expenses. In other

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    countries, all commissions are included in acquisition expenses. To ensure that data is comparable, we have reintegrated trail commissions into acquisition commissions for French companies.

    Staff related ratioWhile the staff number and the related indicators (number of in-force policies per staff and reserves per staff) make sense in the full-ownership model, this is not always the case in the joint-venture model. In some cases, the joint venture is a virtual company, meaning that all the policy administration is done entirely by the parent insurer. In other cases, the joint venture has some staff, but a number of administrative tasks are carried out by the parent company. In these cases, we have estimated the total staff, including the parent company staff, as fully dedicated to the joint venture, when possible.

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    19European bancassurance benchmarkCorinne Legrand

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    list of Companies analysed in the survey

    We have analysed 2006 data for the companies listed below.

    Due to intensive M&A activity in the European banking sector and restructuring in the bancassurance sector, the ownership and business models changed in 2007 in a number of cases, especially in Italy. This is shown in the comment column.

    exhiBit 15

    BanCassurer Bank Country 2006 Business Comment

    model

    prediCa Crdit agriCole franCe full ownership

    Cardif Bnp pariBas franCe full ownership

    sogeCap soCit gnrale franCe full ownership

    aCmn vie Credit mutuel nord franCe full ownership

    antarius Crdit du nord franCe Joint venture

    eCureuil vie Caisses depargne franCe Joint venture Caisses depargne

    partly owns Cnp. in

    2006, eCureuil vie was

    50% held By Cnp and

    50% By Caisses

    depargne. in 2007, Cnp

    aCquired the 50% of

    eCureuil vie held By

    Caisses depargne.

    prepar vie Bred franCe fully owned

    Cnp Banque postale franCe Joint venture Banque postale partly

    owns Cnp.

    aviva vita Bpu BanCa italy Joint venture in 2007, Bpu merged

    with BanCa lomBarda

    into uBi.

    aviva life BanCa marChe italy Joint venture

    Bpv vita BanCo popolare di italy Joint venture in 2007, BanCa popolare

    verona e novara di verona e novara

    merged with Bpi into

    into gruppo BanCo

    popolare. in 2008, the

    BanCassuranCe

    Company was

    reBranded popolare

    vita and fondiaria

    replaCed CattoliCa as

    Company shareholder.

    Bnl vita Bnl italy Joint venture

    Cnp Capitalia Capitalia italy Joint venture in 2007, Capitalia

    vita was aBsorBed By

    uniCredit. the

    BanCassuranCe

    Company was

    reBranded Cnp

    uniCredit vita.

    Creditras vita uniCredit BanCa italy Joint venture

    (Continued)

    the ownership and business models changed in 2007 in a number of cases, especially in italy.

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    exhiBit 15 (Continued)

    BanCassurer Bank Country 2006 Business Comment

    model

    eurizon vita san paolo imi italy full ownership in deCemBer 2006,

    san paolo imi merged

    with BanCo intesa into

    intesa san paolo.

    intesa vita BanCo intesa italy Joint venture in deCemBer 2006,

    BanCo intesa merged

    with san paolo imi into

    intesa san paolo.

    montepasChi Bpms italy full ownership in 2007, axa aCquired 50%

    vita of montepasChi vita.

    poste vita poste italiane italy full ownership

    vida Caixa la Caixa spain Joint venture in 2007, la Caixa aCquired

    the 50% half held By fortis

    in the BanCassuranCe Joint-

    venture Caifor, parent

    Company of vida Caixa.

    BBva seguros BBva spain full ownership

    saBadell vida BanCo saBadell spain full ownership in July 2008, zuriCh

    finanCial serviCes

    aCquired 50% of

    BansaBadell vida

    uniCorp vida uniCaJa spain Joint venture

    mediterraneo CaJa mediterraneo spain Joint venture

    vida

    santander BanCo santander spain full ownership

    seguros

    r+v volksBanken and germany full ownership

    raiffeisenBanken

    neue leBen sparkassen germany Joint venture

    hsBC life hsBC united full ownership

    kingdom

    nationwide nationwide united full ownership in 2007, l&g aCquired

    life kingdom nationwide life and

    set up a distriBution

    agreement with

    nationwide.

    fB fortis Banque Belgium full ownership in 2006, fB

    assuranCes assuranCes was

    merged with fortis

    ag into fortis

    insuranCe Belgium.

    kBC kBC Belgium full ownership

    oCCidental BCp Bank portugal Joint venture

    vida

    Bes vida Bes portugal Joint venture

    santander santander totta portugal full ownership

    totta seguros

    Bpi vida BanCo Bpi portugal full ownership

    fidelidade Cgd portugal full ownership

    munidal

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