STUDY SEES GROWTH IN E.U. MARKETS

Europe's leading insurance markets can expect further growth over the next few years, despite no anticipated let-up in competition, according to a study.

The study by independent business researcher Clive Rassam also examines the implications of the introduction of the euro, the single European currency, in 11 of the European Union countries next Jan. 1. Mr. Rassam forecasts that the creation of the euro will make it easier for insurers to set up offices and buy companies in other E.U. countries, and, as the market becomes more competitive, should lead to an increase in insurance mergers and acquisitions.

The study deals with the six largest European insurance markets -- Germany, France, the United Kingdom, Italy, the Netherlands and Switzerland -- which together in 1995 produced total gross premium volume of about $540 billion.

Germany, by far the largest European insurance market, with 1996 gross premium volume of 232.7 billion deutsche marks ($151.12 billion), should see annual growth in non-life insurance premiums of about 6% annually to 2001, according to the study.

The principal components with which Mr. Rassam makes his projections are research, talking with industry executives, and looking at the economic prospects in each country and cutbacks in state social security systems. His study includes commercial and personal lines for all the countries.

Mr. Rassam says that, as in every other major European country, this growth in Germany will be fueled in part by doubts about future state provision of pension and social security. While he believes tied agents -- those working directly for insurers -- will remain the principal source of distribution, he adds that banks also will make inroads into the German insurance market.

Mr. Rassam expects Germany's reinsurance sector to attract U.S.-owned reinsurers wanting to increase their market share. However, he believes the U.S. companies may be hampered in their expansion ambitions by the fact that they must answer to shareholders and so generally have to take a short-term view of profits. German reinsurers, whose major shareholders tend to be banks with long-term views on profitability, are selling themselves on their ability to take the long-term view of risks.

France, Europe's second-biggest insurance market, producing 1996 gross premium volume of 775.1 billion francs ($149.36 billion), is likely to experience strong growth over the next five years, according to the study. Total premiums are forecast to grow by at least 12% a year to 2003, though in the non-life sector, it will be a more moderate 5% annual rate of growth as the market becomes "ever more competitive," the study says. As in Germany, the study expects banks in France to take an increasing share of business away from direct agents.

The United Kingdom produced gross premium volume in 1996 totaling 83.8 billion pounds ($143.51 billion), making it Europe's third-largest insurance market. While the study forecasts "some" growth in the U.K. non-life sector -- mainly in accident, liability and pecuniary loss (a personal lines product that covers, for example, the inability to make a mortgage payment) -- this will not match the 8% annual growth anticipated for life insurance. The author expects "much more consolidation in the industry," with the non-life sector experiencing it particularly in motor and household insurance, as companies either merge or quit the market. Regarding the distribution of insurance, the study expects brokers to lose ground to banks and direct insurers, though it does not predict the extent of the anticipated shift.

Much further down the list of major European insurance markets comes Italy, with 1996 gross premiums of 68 trillion lire ($44.20 billion).

In Italy, the life sector is expected to grow by 10% annually over the next five years, and the non-life sector is expected to grow by 5% a year. Foreign penetration of the Italian market is forecast to increase still further, particularly on the life side, as European life insurers see Italy as ripe for development.

Regarding prospects for the Neth-erlands, which lies in fifth position with 1996 gross premiums of 61.7 billion Dutch guilders ($35.44 billion), the study says only that the market as a whole should grow by about 7% a year to 2002.

The report also examines the growing popularity of direct marketing of insurance, which it believes poses the greatest challenge, after the single currency, to Europe's insurers over the coming decade. Direct marketing has taken off strongly in the United Kingdom, the Netherlands and Sweden. It also exists in France and Denmark, and, to a lesser extent, in Germany and Italy. Its growth has resulted from the deregulation of financial markets, improved communications technology, the growth of telephone selling, and the entry of new competitors from the banking and retail industry.

While direct marketing exists mainly in personal lines, Mr. Rassam expects it to expand to life and pensions and, more gradually, into the commercial insurance sector.

Insurance Industry in Europe is available from The Stationery Office, P.O. Box 276, London SW8 5DT, U.K; 44-171-873-9090. The cost is 350 pounds ($572).