Cheap money could have unknown consequences for Europe, according to the chief executive officer of Gjensidige Forsikring ASA, Norway’s largest listed insurer.
“It’s a sign of sickness for the economies in Europe when rates are this low,” Helge Leiro Baastad, the 55-year-old CEO said in an interview Thursday. “So considering Europe, Norway, the finance industry and Gjensidige, I would like to see a positive development in rates.”
Insurers and other investors are having to navigate a world where about $9 trillion in government debt offer below-zero yields amid unprecedented stimulus from central banks following the global financial crisis. Insurance companies typically buy bonds to backstop their policies and pension plans on offer.
“When I started, we made money on finance and lost money on insurance,” Baastad, who joined the Oslo-based company in 1998, said. “Today, the main part of our revenue is insurance.”
In Gjensidige’s home markets, Norway’s policy rate is at a record low of 0.5 percent while those in Denmark and Sweden are now below zero.
Gjensidige’s underwriting result grew to 3.5 billion kroner ($426 million) in 2015 while net income from investments fell to 1.5 billion kroner, according to its annual report. That compares with an underwriting result of 1.8 billion kroner and net income from financial assets of 2.8 billion kroner in 2005.
But the insurer won’t be looking to take on more risk to make up for falling returns.
“We don’t have any discussion about whether to do something else because of falling rates -- to do something creative and rethink about finance.” Baastad said. “We become more creative in improving our operations.”
Gjensidige shares rose 0.9 percent to 141.8 kroner a share as of 10:44 a.m. in Oslo, taking the gain over the past 12 months to 15 percent.
The company aims to expand through the acquisition of small and medium-sized portfolios, mainly outside Norway. First priority is the Nordics, according to Baastad. In July, Gjensidige closed its acquisition of Vardia’s Swedish portfolio, which will contribute to making operations in that country profitable in 2017.
The use of new technology is one way for the industry to increase profitability. Baastad sees a competitive edge for Nordic insurance companies with improved analytics and distribution.
“We’re at the forefront here,” he said. “The beauty of the Nordic non-life insurance is the integrated value chains and the fact that there are very strong brands. That means that we can think more comprehensive about digitalization from product, tariff, price, all the way to customer and self-service.”