Finance Industry in Europe

Introduction to Finance Industry
The new strict regulatory realities, the demanding economic environment and the growing
needs of customers are changing the landscape of the financial sector in a dramatic way in Europe. Setting
out the real sources of competitive advantage in these kinds of easily transforming situations can be very
important.
Europe has a well-developed financial sector. Many European cities are financial centres with
the City of London being the largest. The European financial sector is helped by the introduction of the
euro as common currency. This has made it easier for European households and firms to invest in
companies and deposit money on banks in other European countries. Exchange rate fluctuations are now
non-existent in the Eurozone. The financial sector in Central and Eastern Europe is helped by economic
growth in the region, European Regional Development Fund and the commitment of Central and Eastern
European governments to achieve high standards. European banks are amongst the largest and most
profitable in the world. The assets of the financial sector in Central Europe have risen each year by an
average of 8.0% to reach around EUR 893.4 Billion.
Banks and insurance companies have huge balance sheets and those balance sheets matter
hugely. Relatively small changes in the balance sheet can have an enormous impact on earnings. Future
cash flows are very much dependent on the financial instruments on banks’ and insurance companies’
balance sheets.
In this Report we will study about the role of Financial Sector services and finance industry in
European region.

Europe Finance Industry
The association for financial markets in Europe Securities Industry and financial Markets
association (SIFMA), Asia securities and Industry and financial markets association (ASIFMA) and
Global financial markets associations (GFMA) advocates stable, competitive, and Sustainable
European financial markets that support economic growth and benefit society.
The global banking sector has faced a series of problems since 2008 that have
decimated the overall net profit of the sector to just 10% of its previous level. Central European banks
faced the same difficulties of falling profitability, but the nature of the process differed from country to
country. In Europe asset growth was down 0.5% due to
Concerns about Eurozone debt.
The financial industry spends more than
€120 million per year on lobbying in Brussels and
employs more than 1.700 lobbyists to influence EU
policy-making.
Since 1998 the European Union has used
a set of financial instruments (guarantees and venture
capital) to increase the volume of finance available for
Small businesses. Since then, about 360,000 small
businesses have benefited from the guarantees provided
by the European financial instruments.
The financial sector of all EU countries is in
a transitional level and the traditional banking institutions have suffered competitive pressures by a
new form of banking institutions, as well as by non banking financial companies which had important
consequences on the structure of the banking sector.

Europe Finance Industry Continue……
Universal banking is already a propensity in European countries with increasing rates which are required
to continue. The main attribute of the European market is the ongoing incorporation of the economical industry via
mergers and acquisitions, attendances or combined projects, between financial institutions, insurance coverage's and
other financial institutions (ECB, 1999).
The new European market appears to motivate significant economical groups with simply classified
actions. These actions are performed by specialized, semi-independent divisions or additional companies. This
technique improves the degree of monopoly with a less noticeable way. The Group regulation prohibits monopolistic
methods in the making of services. However, such methods are difficult to be identified. Consequently, this type of
technique is not straight opposite to the Group directives, even if it can lead to monopolistic situations in local level, or
even if the European financial market is not covered with a single economical company.
Some difficulties are common across the world. New technological innovation endanger to affect retail
store economical solutions business models in designed and creating marketplaces as well. In general financial, the
pressure of improved working and investment costs presage a shake-out of potential which is already reducing market
assets and, especially in European countries, reducing access to credit for non-rated companies. In insurance
worldwide, the focus must be on finding maintainable productivity and growth, and on cautious managing of both the
uncommon interest rate environment and investment marketplaces movements on the balance sheet.
Other difficulties are more local. The efficiency of economical companies is always associated to the
efficiency of the actual economical systems they serve – as some put it, economical solutions is a utilized bet on the
actual economic system. But national home is a more important aspect in a economical institution’s efficiency
nowadays than at any time during at least the last many years. This is especially true for financial institutions. Put
simply, poor organizations in good economical systems can improve nowadays than well-run organizations in having
difficulties economical systems. At a more macro level, economical companies in growing marketplaces are doing well
while many of those in the most designed economical systems battle to return the cost of their investment.

The changes in profits from pre-crisis days are striking. All geographies show effective
revenue and operating income – in some cases amazingly so. Even in European countries, banking
earnings have grown since the crisis. But ongoing credit score failures and reorientation costs in
European countries, and regulating charges and higher capital minima in both European countries
and North The united states, are reducing profits in those areas. Latin America and most of Asia
Pacific (outside Japan, Korea and Taiwan) remain high-return marketplaces for the time being
(although foreign firms can suffer in many markets), with some likely at not sustainable levels.
Returns in insurance have also languished with property and victim industry profits Sydney and North
America are significant exclusions. Still mainly motivated by the underwriting cycle and life insurers’
performance motivated by credit score, interest rate and equity marketplaces. The industry has
experienced little by way of top quality or assessment growth over the last several years.
As a result, Europe Firms are particularly divergent. Europe Firms standing on the
threshold of once in-a-generation restructuring; the challenges of decoupling from sovereign credit
risk and the transition to European Banking Union still uncertain; and with an insurance industry
potentially hampered in its global competitiveness by stringent regulation.
Loans, guarantees and equity
CIP Financial instruments: The EU provides funding for small businesses via financial institutions in
the Member States. The Financial Instruments Financial of the Competitiveness and Innovation
Programme (CIP) help SMEs raise equity and debt finance. With a budget of over one billion euro,
these instruments should help about 300 000 to 400 000 SMEs to access funding by 2013.
Global loans: The European Investment Bank and the European Investment Fund also have lending
and investment programmes that can benefit small businesses. These programmes can be accessed
via financial institutions in the Member States.

Bank Loan & Guarantees
Risk Capital Loan Finance
• Better Governance
• Capacity Building
• Cross Investments
• Microfinance
• Round Table of
Banks / SMEs
• SME Guarantees
Public Stock
Markets
Seed & Early Stage Venture Capital Funds
Entrepreneurs, Friends, Family
Formal Venture Capital Funds
Business Angels
• Seed Business
• Business Angels
• High Growth
Innovative
SME Scheme
(GIF)
Pre – Seed Phase Seed Phase Start – up Phase Emerging Growth Development
SME development stage
Valley of Death
HIGHER RISK • Policies LOWER RISK
• Financial instruments
SME Revenue
Loans, guarantees and equity Continue….

Depression and Polarisation
The problems of 2008 has brought Europe to a depression. There are has been separated
between a “Centre” with financial and governmental power, and a “periphery” with no governmental impact,
great community financial debt, great lack of employment and no hope for restoration. This polarisation is
obvious in Eurostat data about commercial manufacturing. Unemployment in European countries has
increased considerably due to the credit crunch and global recession after 2008 crisis. As the “Centre” has
mostly maintained its commercial base and increased its exports to the “periphery”, nations are likely to face
increasing trade instability within Western nations that in the gradual nations might be resolved either by
continuing austerity guidelines - disappointing earnings and imports -, or by restored capital inflows further
growing community and private financial debt. In both cases, Europe’s outside is going towards a manage of
failures of income, tasks, manufacturing and exports.
Moreover, the consequences of the problems is likely to be noticeable by a more polarised
commercial structure, where poor nations, areas, sectors and firms become gradual, and where also the
“Centre” may be left with lower requirement, and a reduced ability to create new technological innovation and
economic activities. With a economic downturn of overall development in Europe and economic decrease
impacting several areas of its “periphery”, change is likely to become more challenging. Western nations as a
whole would be trapped in its traditional financial velocity – with gradual markets, a heavy ecological pressure,
and growing inequality - while other advanced and growing nations may move quicker towards new
knowledge, new products and procedures, new sources of employment, reinforced by quicker requirement
characteristics. The opportunity to create in Western nations a new velocity of development based on eco-friendly
actions and greater social rights would become more challenging to engage in.

Demographic Trends
Demographic change on EU level: the challenge
Europe has a population of approximately 500 million people. As the figure below shows, according to
the predictions by the United Nations – which are more negative concerning the timing of population
decline than the forecasts by Eurostat1 – increasing life expectancy will not be enough to
counterbalance low fertility rates (there is a natural decrease predicted to start in 2010), and the
positive migration balance can only mitigate this process until approximately 2025. By that time, the
population of the EU may reach 520 million, from which level it will begin to decrease.
4000
3000
2000
1000
0
-1000
-2000
-3000
The composition of population change in the EU
Natural Increase Net Migration Population Change
EU 27
Source: United Nations 2008
1.According to the latest Eurostat forecast, population decline in the EU will only start in 2040. This is a modification of their previous
prediction, which put this date at 2025, like the UN.

Demographic Trends Continue…..
There is evidence of a turning point in behavior, as strong global markets have slightly diminished investor fear factor
over the past year and provided the sense of comfort most investors still rely on. Two-thirds of investors worldwide
say that asset growth is increasingly a priority over asset protection. In Europe 71 percent of investors still are
unwilling to increase risk, up from 68 percent a year ago. in Europe, more investors have turned to advisors over the
past year, but fewer have an ongoing relationship with a dedicated advisor. With the exception of the U.K., European
investors are least likely to have clear financial goals or a financial plan.
European investors are most affected by the economic turbulence happened in last five years hence, they are more
likely to invest in secure financial instruments. Europe including United Kingdom measures second highest in taking
minimum investment risk and ready to sacrifice returns (%). Below exhibit shows details worldwide:

Investment Fund Assets by Geographical Breakdown of AUM at end 2012 (EUR
billion)
European professionally managed investment
funds totaled EUR 7.4 trillion at end 2012 (see
table). Total AUM of investment funds increased
13% in 2012, due to a turnaround in investor
sentiment in Europe, after the ECB committed
itself to do “whatever it takes” to save the euro.
The largest financial centers (the UK, France and
Germany) managed 61% of European investment
fund assets at end 2012. The relatively high
market share of the rest of Europe (32%) is largely
attributable to other countries with large fund
management, such as Switzerland and the Nordic
countries, as well as Luxembourg and Ireland,
where some investment fund assets are also
managed.
Country AUM AUM %
Change1
Market
Share
AUM/GDP
UK 1,688 11% 23% 87%
France 1,482 5% 20% 73%
Germany 1,329 18% 18% 50%
Italy 245 19% 3% 16%
Belgium 103 3% 1% 27%
Austria 84 11% 1% 27%
Netherlands 69 7% 1% 11%
Portugal 18 -4% 0.24% 11%
Turkey 14 -12% 0.19% 2%
Hungary 12 13% 0.16% 12%
Greece 6 15% 0.07% 3%
Rest of
Europe2
2,364 17% 32% 62%
Total 7,413 13% 100% 52%
1 .End 2012 AUM compared to end 2011 AUM.
2 .Including Bulgaria (EUR 247 million) and Romania (EUR 2.1 billion).

Investment Fund Assets by Geographical Breakdown of AUM at end 2012
(EUR billion) Continue….
Investment funds AUM increased throughout much of Europe, with only a few exceptions. Italy led the way with
growth of 19%, followed by Germany (18%), thanks to strong growth of investment funds reserved to institutional
investors. The UK registered a growth of 11% and France saw its investment fund AUM increase by 5%.
When comparing AUM to GDP it can be seen that investment fund assets managed in the UK represented 87% of
GDP, compared to 73% in France and 50% in Germany. These high ratios reflect the importance of the asset
management industry in general in these countries as well as the ability of their asset managers in attracting
assets domiciled abroad. They also explain why the European average is relatively high (52%).

Trends
The Structural
Change in the
National
Banking
Markets
Trends
The Ideal
Organizational
Model
Deregulation
Public Sector
Role
Financial
Innovations
Mergers and
Acquisitions
The European
Committee
and the Cross-
Border
Extension

Trends Continue…..
 The Structural Change in the National Banking Markets :
At nationwide stage, Financial institutions react to the new European environment with mergers, products or even
alliances, which are sucked in order to strengthen their industry position and to avoid new competitive demands from
overseas. Two are the main propensities that exist together. The first represents mergers and products that create
powerful economical groups capable of competitive at a nationwide stage. The second concentrates on building up the
role of smaller, modern and versatile banks with specialized production and a variety of innovatory products and
services, and on internally connected their network with significant economical Units. The rearrangement of the
Western economic climate at nationwide stage includes a rapid reduction of the variety of separate banking
organizations and the mustering of industry control in a minimal variety of organizations. The degree of centralization in
EU as a total is really unimportant. Difference seems to control the behavior of credit organizations due to the
denormalisation that removed the restriction among the different types of financial institutions.
 Mergers and Acquisitions :
The earnings that may occur from mergers and acquisitions can be remarkable. Proportionate, however, is the risk that
may result to the decrease of shareholders’ value. The significance of the shareholders’ value provides consistently
increasing significance, to be able to spread prosperity and capital to investors. A successful incorporation needs
precise ideal planning, after real key value motorists have been examined to make sure best quality. Major products
make sure financial systems of range and an opportunity to get into other marketplaces. Additionally, it reimburses the
negative results of improved competitors within an atmosphere of low interest-rates.

 The Ideal Organizational Model :
The appropriate organizational model is targeted on the development of a financial group with a
number of subsidiary companies that offer all the financial solutions with efficiency and versatility,
working almost autonomously under the control of the spend company, which is usually a bank, while
its network comprises the basic way for the total marketing of the team. This efficient freedom
decreases the prospect of interests’ issue and helps the guidance of banking organizations by
supervisory regulators. The new Western industry appears to motivate significant economical
categories with simply classified actions. These actions are performed by specialized, semi-independent
divisions or additional organizations. This technique improves the degree of monopoly
with a less noticeable way. The Group regulation prohibits monopolistic methods in the making of
solutions. However, such methods are difficult to be identified. Consequently, this type of technique is
not straight opposite to the Group directives, even if it can lead to monopolistic situations in local level,
or even if the Western economical industry is not covered with a single economical company.
 The Role of the Public Sector :
The public sector facilitates and impacts the improvements that take place in the financial system.
The government authorities of all EU nations implemented important changes in their regulation,
seeking at the methodical decrease of the government interventionism, in order to accomplish the re-composition
of the financial program. The adverse impact on productivity of financial institutions, which
is due to the administration of competitors and to the trend of arbitration was counterbalanced by
beneficial financial circumstances designed by the decrease of interest-rates, which improved their
financial commitment earnings, and their financial commitment financial income. The release of a
common currency improved and multiplied the existing propensities. The inversion of competitors
circumstances motivates the relatively tremendous dimension but also the variety of the actions so
that the exploitation of financial systems of range and variety to be obtained, and also the synergies
that occur from the cross-selling and the multidimensional customer service.

 The European Committee and the Cross-Border Extension :
The regulation of the European Union as well as the organization of the common currency have designed new
marketplaces and offered new possibilities for cross-border actions. According to the European Committee cross-border
mergers and acquisitions will regularly become more eye-catching. Most cross-border dealings do not include
an important change of possession or control .Obviously this technique does not provide banking organizations with
comprehensive systems of additional companies. Cross-border mergers and acquisitions do not appear to have
acquired ideal significance. A number of aspects, such as management variations, interaction complications,
deficiency of understanding of local market, legal challenges etc, make limitations in development via mergers in
European level apart from the fact that this plan was shown appropriate in nationwide stage.
 Deregulation :
The unification of the European financial market due to the appearance of Economic and Monetary Union (EMU) has
modified the financial regulation in the taking part nations. After the abolition of the controlling limitations, credit
organizations such as financial institutions, mutual funds, insurance providers etc., have moved from their
conventional part and via mergers, acquisitions, consolidations, combined projects or alliances, have gradually
performed a bigger part in their industry. Institutional and technical improvements have restricted the access
limitations in the financial industry. The development of institutional traders assisted their access to the public benefits
and increased the part of capital marketplaces.

 Financial Innovations :
Technology has changed the basic economic concepts of banking, has assisted the adjustment of
extensive details, has enhanced control and risk management and has permitted quicker performance
of dealings and development of eye-catching financial offers. Furthermore it has permitted a more
efficient supply of the existing products and services; it has increased the economies of scale in
banking processes. Electronic banking and customer services, using modern electronic channels,
such as mobile telephone networks, television and wireless appliances, constitute a new way of
transaction with the bank. This is a new reality, which is called remote banking; it has enhanced the
capabilities and has affected all banking procedures. These days, financial institutions contest with
each other in a more clear market where the contemporary economical client, who has easier access
to details, has the ability to compare different items according to quality and price.

Growth
Latest Reforms and Development for enhancing Financial sectors
Europe has also been working to improve the stability and efficiency of the Single Market in financial services. This
is essential to ensure the financial sector supports the real economy. Key principles include the need for the
financial system to be properly supervised, more stable, more responsible, more consumer-friendly and growth-enhancing.
Three new European Supervisory Authorities and the European Systemic Risk Board were established
in 2011 to improve cross-border cooperation, consistent enforcement of rules and systemic oversight. New rules will
also establish a single rule book for all financial firms and markets to apply appropriate regulatory standards and
support a level playing field across the Single Market.
 Feb 2013 - Strengthened regime on anti-money laundering
 Apr 2013 - Non-financial reporting for companies
 May 2013 - Access to basic bank account / transparency of fees / switching of bank accounts
 June 2013 - Creation of European long-term investment funds
 July 2013 - Revised rules for innovative payment services (cards, internet & mobile payments)
 Sep 2013 - Regulation of Financial Benchmarks (such as LIBOR & EURIBOR)
 Mar 2014 - Long-term financing of the European economy / Revised rules for occupational pension funds
(“IORP”)
 Apr 2014 - Revision of the Shareholder Rights Directive

Services in Finance Industry
Financial services plays vital role in shaping finance industry outlook in world’s economy. The Financial
Services industry is more competitive than ever. Comprehensive financial services and professional
consulting are a sharp focus for European finance industry. Deft in financial services and long
experience in customer service provides edge to Europe. Broadly we can classify these services into
three major service sector i.e. Banking, Insurance & Asset Management.
Asset
Management
Insurance
Banking

Asset Management
The term Asset management is most commonly used in the financial world to explain people and companies that
manage investment strategies on behalf of others. Asset management is a methodical process of implementing,
working, keeping, improving, and losing resources cost-effectively.
Asset management actions include assigning resources and selecting investment strategies, using a variety of
financial commitment opportunities in authorized and non-registered funds; improving profits with types or leverage;
and creating personalized financial commitment solutions for larger clients, mainly through so-called separate
accounts.
Total assets under management (AUM) in Europe increased 11% in 2012 and close to 9% in 2013, to reach an
estimated EUR 16.8 trillion at end 2013. This growth was driven by net flows and market movements, on the back of
improved financial market conditions and renewed investor confidence. This brought the ratio of AUM to aggregate
European GDP to 115% of GDP at end 2013.
European AUM (EUR trillion) and AUM/GDP (percent)
13.6
10.9
12.8
14 13.9
15.4
16.8
102 81 81 104 99 108 115
18
16
14
12
10
8
6
4
2
0
140
120
100
80
60
40
20
0
2007 2008 2009 2010 2011 2012 2013
European AUM (in percent) European AUM (Euro trillion)

Asset Management Continue…..
European asset managers held 23% of the securities other than shares issued by euro area residents
at the end of 2012, and 31% of the share and other equity issued by euro area residents. The order of
magnitude of this estimation confirms the essential economic function played by asset managers in
Europe in providing an essential link between investors seeking appropriate savings vehicles and
borrowers who need funds to finance their activities and developments. By performing this function
asset managers make a significant contribution to the overall development of the real economy.
Europe ranks as the second largest market in the global asset management industry –managing 33%
of the EUR 47 trillion global asset management industry at end 2012. The European asset
management industry has traditionally held a share of approximately one-third of the global industry.
Central Role of Asset Management in Investing
Asset managers offer a key service to their customers
desiring to increase the return on their prosperity. The
flow chart reveals the transmitting procedure by which
resources circulation from customers to the market.
Benefits are resources which houses do not eat from
their earnings. For institutional customers such as
insurance providers and retirement benefits resources,
this contains the repeated efforts these organizations get
from their members. These savings or earnings sources
are added to family prosperity or the supplies of
institutional traders.
By combining savings from a large group of traders, asset
managers offer a number of benefits to their customers.
Saving
Wealth
Asset
Management
Risk - Adjusted
Returns

Flow of Fund in Asset Management Industry
The primary features of asset management
companies in Europe is to channel funds
from those that have stored to those that
have a lack of funds. Those who have
stored and are lending funds, the lender-savers,
are on the left, and those who must
lend funds to finance their spending, the
borrower-spenders, are on the right. Debtors
can lend funds directly from creditors in
financial markets by promoting financial
instruments, such as certificates of deposit,
commercial paper, corporate bonds,
government securities and stocks. This path
is often known as direct finance, in contrast
to the second path, which includes a
financial broker that appears between the
lender-savers and the borrower-spenders.
The real difference between this path and
that of direct finance is that the lender-savers
do not know who the greatest loan
provider of their funds is, whereas in the
direct finance path, the lender-saver knows
to which client their resources are being
routed to.
Banks
Insurance companies & Pension funds
Asset
Management
Companies
Financial
Markets
Lenders - Savers
• Business Firms
• Governments
• Households
• Foreigners
Borrower – Spenders
• Business Firms
• Governments
• Households
• Foreigners
Investment Banks & Brokerage Firms

Flow of Fund in Asset Management Industry continue…..
The major financial intermediaries fall into three wide categories: banks and other deposit-taking
institutions, life insurance companies and pension funds, and asset management companies. These
three groups offer specialist services in the economy. Typically, banks are financial intermediaries
that accept deposits from individuals and institutions and make loans.Insurance companies and
pension funds take in savings from households and company employees, and invest them in money
market and capital market instruments and other assets. Asset management companies provide an
efficient way of pooling funds for investment purposes.
Asset management organizations offer their agent function not only to houses, business companies
and government authorities, but also to the other groups of financial intermediaries, in particular
pension funds and insurance policy agencies. For this reason, amongst others, they have a separate
position. As organizations making investment decisions choices for investors who have chosen to have
their assets professionally managed, Asset management organizations are the most important type of
buy-side institutions. The buy-side is the opposite of sell-side organizations, such as investment banks
which are specialized in helping firms issue securities and acquiring other companies through mergers
and acquisitions, and brokerage firms, which conduct transactions on financial markets for clients or
for their own account.

Asset managers are creating a the real economy, assisting organizations, financial institutions and government
divisions to meet their short-term financing needs and long-term investment specifications. They achieve this by
offering equity capital in both primary (IPOs and private placements) and secondary markets, and secondary
markets, as well as credit capital – directly via corporate bonds or indirectly via money markets. By contributing to
very high phases of activity and turnover in the secondary markets, they also promote the determination of the price
of the securities showing all appropriate details. If asset managers were not contributing to the supply of funds in
financial markets, companies would lend in less favorable conditions. This would lead to higher cost of capital, lower
levels of investment and poorer long term growth performance.
Last but not least, voting at investor conferences is a way for asset managers to play a role in enhancing business
governance of issuers, and in assisting to build investor value while safeguarding the managers’ portfolio investment.
Indeed, by voting, asset managers pay attention to the quality and suitability of the details provided by providers and,
eventually, may observe in the medium-term their actions. So, voting has become a part of the liability taken on by
asset managers to signify specifically the best interests of savers and investors

AUM in Investment Funds and Discretionary Mandates
Discretionary mandate assets at end 2013 are estimated at EUR 8.7 trillion or 52% of AUM, whereas investment
funds accounted for the remaining EUR 8.1 trillion or 48%. Typically, asset managers receive mandates from
institutional clients and high-net-worth individuals, whereas investment funds serve both retail and institutional
clients’ investment needs.
48% 52%
EUR
7,415 bn
Discretionary Mandates Investment Funds
6987
5396
6289
6993
6587
7415
6642
5521
6466 7042 7275 8021
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2007 2008 2009 2010 2011 2012
Investment Funds
Discretionary Mandates
Discretionary Mandates Vs
Investment
Funds (end 2012)
Evolution of Investment Funds and
Discretionary Mandates AUM (EUR billion)
EUR
8,021 bn

Insurance
Insurance is the equitable transfer of the risk of a loss, from one enterprise to another in return for payment. It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain loss.
Insurance enables households and organizations to live and perform in a stable environment. It not only helps economic
transactions by providing risk return and indemnification, it can also enhance financial stability, mobilize benefits, enable risks
to be handled more effectively, motivate reduction minimization and enhance efficient capital allowance.
With a share of 33% of the global market, the European insurance industry is the largest in the world, followed by North
America (30%) and Asia (29%). Insurers’ investments in the European economy continued to grow during 2013. Concerns
remain, however, about how the Solvency II directive will affect their ability to continue as Europe’s largest long-term stable
investors, according to Insurance Europe. As of 31 December 2013, the European insurance industry had over €8.5 trillion of
assets under management, representing a 3.2% growth at constant exchange rates compared with 2012
Life Insurance
The European life insurance industry continued to operate in a difficult macroeconomic environment in 2012. A significant
proportion of Europe’s customers found it increasingly challenging to commit part of their income to long-term investment
strategies, with short-term main concerns such as day-to-day expenses or repaying debt generally taking priority. Consumers also
seemed to have a greater preference for liquidity in their products, partly due to a lack of confidence in financial markets. Demand
for life insurance was further affected in a number of countries by factors such as a reduction in the tax
incentives for life insurance investment strategies and competition with other (more liquid) benefits items. Despite this challenging
environment, European insurance providers ongoing to play their important social role of providing long-term financial stability and
security for policyholders’ benefits.
Life insurance providers engaged in premium and with-profit advantages items with described advantages, which invest the huge
of their funds in fixed-income equipment, find it progressively difficult in such an environment to offer eye-catching assured
financial commitment profits to customers. These items therefore become less attractive when interest levels are low. The likely
rebalancing of risk-sharing in new agreements between customers and insurance providers, with customers required to take more
of the threat, also makes the agreements less attractive

Insurance Continue…..
Non-Life Insurance
The non-life insurance policy industry, with its three main business lines — motor, health and property
— displays a significant relationship with the economic circumstances and durations in each
individual market. Higher levels of general economic activity typically result in higher levels of
demand for protection products. Need for general insurance policy is also price-sensitive because of
the limited degree of product differentiation inherent in the non-life industry.
Non-life insurance policy showed 41% of total written premiums in European countries in 2012.
Premiums continued to increase in comparison to past years, despite the challenging economic
environment. Non life business benefits from the fact that, even during periods of economic
uncertainty, people still buy insurance to protect the things that matter to them, such as their
health,their houses or their vehicles. This is also one of the key reasons why insurance providers play
such a stabilizing part in the economic system.
For non-life business, motor (except third party liability), credit and certainty deliver seem to be the
most insecure business lines, with premiums decreasing in more than half of the nations surveyed.
In the latter, the decline is more than 5% in almost 50% of the nations. Fire and damage and common
responsibility seem much more effective, with growth in more than 70% of the nations. Accident and
health is also growing in a large number of countries as personal accident is often sold in addition to
property insurance.

Benefits and claims paid
Total benefits and claims paid by insurers to their customers amounted to €948bn in 2012, a 1.4% increase year-on-
year. This was primarily due to the increase in life insurance benefits paid in Europe: up 3% in 2012, to €647bn,
following a more significant increase of 11% in 2011. The UK, France, Germany, and Italy continue to account for
three quarters of European life benefits paid. Total benefits and claims paid in non-life insurance remained largely
stable in 2012, amounting to €302bn, with higher property claims balanced out by lower motor claims. A look back
at the last few years shows that the total claims and benefits paid have constantly increased since 2010 after a
significant drop in 2009. This is a reversion to the trend of constant increase that prevailed before the crisis.
Total European benefits and claims paid — 2003–2012 (€bn)
600 610 660
780
850 850
800
830
900 920
380 390 410 500 580 580 500 520 590 610
1800
1600
1400
1200
1000
800
600
400
200
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Non-Life Insurance
Life Insurance

European Insurance investment portfolio
European insurers’ investment portfolio —
2003–2012 (€m)
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
5200
5800
6400
6900
7200
6500
6900
7300
7400
8300
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Banking
Retail banks offer a range of services to individual clients and businesses, rather than to huge companies and other
financial institutions. The services can include current accounts, investment advice and broking, and loans and
mortgages.. Retail banks perform two crucial functions for customers: firstly, they enable clients to bank their cash
securely, access it easily, and conduct transactions; and secondly, they provide access more cash to fund huge
purchases, such as buying a home. In return for holding customers’ funds, which they can then invest, financial
institutions pay clients interest.
The state of the financial system in European countries is not a satisfied one. The international economical trouble
global financial crisis of 2007- 2009 has turned into the European sovereign debt crises of 2010-2012. While a strong
financial sector can support financial growth, a poor industry increases an financial problems. The Western economic
industry had a strong year, 2012. Long-term pattern continued its course: total number of Credit Institutions (CI) in the
EU decreased by 199, of which the biggest change was recorded in Italy (-40 CI), followed by Germany (-29), Spain,
France and the Netherlands (-21 CI each). These changes reflect banks’ effort to consolidate. The only countries where
the change was positive, are: Lithuania (2), Malta (2) and Sweden (1).
European banks have put significant effort into entering the life insurance business during the past few decades and
they have had significant success. The BAI/BCG study estimates that leading European bancassurers typically
generate a return on revenue and on capital of 20 % to 30 % and derive one-quarter to one-third of their retail profits
from insurance policy and investment revenue . Moreover, European banks have penetrated the life insurance business
to a significant degree: their share of the markets averages more than 20 %, and exceeds 50 % in France. Finally,
European banks’ revenue of life and pension insurance continue to grow at more than 20 % per year, substantially
more rapidly than overall revenue in their local markets.

Banking Continue…..
EUROPEAN RETAIL BANKING REVENUES €BN, 2011 – 2012
BREAKDOWN AT
COUNTRY LEVEL
10%
8%
15%
14%
15%
14%
22%
22%
18%
18%
2%
2%
5%
6%
10%
13%
4% 4%
2011 2012
Spain
Italy
France
Germany
UK
Sweden
Turkey
Russia
Switzerlan
d
BREAKDOWN AT
SEGMENT LEVEL
377
81% 80%
19%
20%
2011 2012
Individuals
SMEs
365
377
365
BREAKDOWN AT
PRODUCT LEVEL
365
377
15% 16%
15% 17%
7% 7%
3%
14%
19%
8%
4%
6%
5%
16%
18%
5%
3%
5%
4% 4%
5% 3%
2011 2012
Mortgages
Personal loans
Credit cards
Overdrafts
Small Business
assets
Current accounts
Savings
Small Business
liablities
Bancassurance
Retail
Investments
ALM Revenues
The above represents the single largest segment of the European banking market as a whole – over
50% of overall aggregate banking revenues across the countries analysed.

The performance of 100 key European banks representing more than 90% of
the EU 27 banking industry.
Banking revenues from core activities [2013; EUR Bn]
Specialized Financial Services
Insurance and Investor Services
Corporate and Investment Banking
700
5%
13%
23%
59%
Germany France
UK,
Ireland
Iberia ROW2
Source: Annual reports, Financial presentations, Roland Berger analysis
CEE1BeNeLux Nordics
Switzerland,
Austria
Regions of activity
1. Central&
Eastern
Europe.
2. Rest of World
Retail & Business Banking
Italy
Banking Continue…..

Banking Continue…...
As a result of bank closure, some 5.5 thousand branches were closed. The countries concerned are
mainly Germany, Spain and Italy, where 1.6 thousand, 2 thousand and 1 thousand branches closed,
respectively. In track with that, the number of employees employed in the banking industry dropped by
over 51 thousand or 1.7%, not least on the account of Spain (over 11.7 thousand), Italy (over 6.8
thousand), France (5.4 thousand), Germany (4.7 thousand), Poland (4.3 thousand) and Romania (4
thousand). By comparison, Sweden saw the biggest rise secured employees depend, by 2.4 thousand.
The turbulence also had an impact on banks’ financial figures in 2012. Assets shrank by 1.9% or EUR
863 billion. Total stock of loans in the EU fell by EUR 206 billion (0.8% of total stock of loans), while
stock of deposits increased by EUR 177 billion. These figures are a tangible manifestation of the
impact of financial regulation, which eventually leads to deleveraging and restructuring of the banking
sector.
Total assets, loans, deposits, number of credit institutions and
Deposits (EUR…
Deposits (EUR trln)'12
Loans (EUR trln)'11
Loans (EURtrln)'12
Assets (EUR…
0 10 20 30 40 50
Assets (EUR trln)'12
Staff (mio)'11
Staff (mio)'12
Number of CI(thsd)'11
Number of CI(thsd)'12
Euro area
Non euro area EU
EFTA
number of staff employed in 2011 and 2012

Banking Continue…...
Total stock of deposits in the EU increased by 0.5% in 2012, however, development is only because of the non-euro
place EU nations (by EUR 232 billion or 4.7% for the region), while euro area banks’ inventory deposits declined by
EUR 115 billion, or 0.7%.
Analysis of the EU banks’ significant counter
parties reveals that the greatest decline in
banks’ deposit base took place within the inter-bank
deposits: they decreased by EUR 283
billion, or 2.2%. The only other counterparty
whose deposit base shrank was central
governments: a fall of EUR 16.5 billion, or 7.2%
in 2012.
On stability, EU deposits from non-monetary
financial organizations grew by a steady 2.2%,
of which deposits from corporates increased by
a healthy 5.1% (or by EUR 108 billion).
Total deposits
15.3 16.8 16.5 16.5
17.3 17.2
4.7 4.3 4.7 4.8 5 5.2
1.2 1.1 1.1 1.3 1.9 2.1
30
25
20
15
10
5
0
2007 2008 2009 2010 2011 2012
Euro area Non euro area EU EFTA

Challenges and opportunities
Challenges
 European financial institutions will face a significant investment crisis in 2014 through the
combined impact of Basel III capital ratio requirements, Leverage Ratio requirements, the European
Central Bank Comprehensive Assessment, and possible further national regulatory discretions. As
economies rebuild, banks should switch from asset contraction to expanding their capital
base. Although the environment for capital raising is becoming more favourable, we estimate €180
billion is required, which is a substantial amount for the market to absorb in the short term, so the
competition for new capital will be fierce.
 Cash generation for stronger European banks will stay strong, particularly with weak loan
growth. This means stronger financial organizations will start to look for growth opportunities again.
For some this will lead to asset sales or dealings between recuperating and retrieved banking
organizations. Acquisitions are likely to stay within areas e.g. European countries and Central and
eastern Europe, as the regulatory environment is driving regionalised strategies.
 Non-bank or specialist lenders will continue to rise, but still have a long way to go before they
challenge the mainstream lenders. At some point, a number will sell out to their larger bank rivals,
providing them with an expanded product offering (e.g. a capital light, non-insured peer to peer
product).
 European Regulation of OTC Derivatives and Short Selling On 15 September 2010 the
European Commission adopted two proposals — one for a regulation to bring greater transparency
to the OTC derivatives markets and a second for a regulation on short selling and certain aspects of
Credit Default Swaps (CDSs). Negotiations on both proposals are under way in Council and
Parliament. Once adopted, the regulations would applied from year-end 2012.

Challenges and opportunities Continue….
Opportunities
 As the Eurozone and UK recover from the recent economic turmoil, successful insurers will be those that
simplify their organizations and business models to create more efficient operations that can seize emerging
growth opportunities.
 Insurers must keep pace with evolving regulations, which are becoming more stringent, affecting everything
from capital requirements, to commission rates and customer care.
 While the region’s aging population and the personal and commercial non-life markets present significant
opportunities to increase sales, insurers must maintain focus on profitability.
 As the low interest rate environment continues, insurers must retool their investment strategies to increase
investment yields and be adequately compensated for increased risks added to the portfolio.
 As the economy improves, insurers must develop a stronger digital presence, investing in technologies that
address the enhanced service expectations of consumers purchasing insurance on the internet.
 The development of a comprehensive, cross-functional enterprise data analytics strategy will improve customer
targeting, product design, pricing, agency management, underwriting, claims and reporting

Recommendations
There are several things that European finance sector need to do for their
success:
 Get accustomed to the new, reregulated world in which they are operating;
 Get a real grip on risk management;
 Use their capital more effectively;
 Innovate across multiple dimensions (easily said but very difficult to do);
 Keep finding ways of enhancing the customer experience.
 Developing Europe’s securities markets and non-traditional sources of finance;
 Encouraging and enabling a greater, more direct, role for long-term investors;
 Encouraging the investment banking ‘sell-side’ to do more to stimulate and underwrite long-term
investment;
 Enabling market-based credit intermediation to play a more prominent and stable role in
financing; and
 Reviving and developing securitisation.

THANKS
FOR READING THIS REPORT
www.eminenture.com
All contents, forms, pictures and services published in this presentation are proprietary
and confidential to Eminenture Private Limited only.
Copyright © EMINENTURE PRIVATE LIMITED. All rights reserved.

Finance Industry in Europe

More Related Content

What's hot

Viewers also liked

Similar to Finance Industry in Europe

More from Eminenture

Recently uploaded

Finance Industry in Europe