An aging society, reforms of the tax and social security systems, climate change, natural catastrophes and price wars are only a few of the prominent key words and themes forming the backcloth of developments on insurance markets last year. However, depending on country-specific factors such as the development level of the sector, changes in statutory conditions or demand preferences, developments in European countries have variedquite considerably. This applies to both the life and the non-life insurance business.

The financial assets of private households in Germany totaled EUR 4,068bn at the end of 2004, around twice the amount recorded at the beginning of the 1990s. Between 1991 and 2004 the average annual real yield on these assets amounted to 2.1 %. It is striking that over the same period the USA achieved an average real yield of 3.6 %. One of the main reasons for this is the higher share of equities in the USA (22 %) compared with Germany (6.5 %). By bringing the equity ratio into line with US levels, the total portfolio yield would increase by 0.6 percentage points. With financial assets of EUR 4 trillion, the yield improvement to be expected in the long term would correspond to annual asset growth of EUR 24bn - almost 20 % of total financial asset acquisition in 2004.

The situation in the insurance industry has eased in the past four years as premium income has risen, non-life insurance companies’ combined ratios have been brought down and life insurers’ capital base strengthened. The stock markets have acknowledged this development with a lift in the price of insurance shares. Natural disasters, causing damage on a hitherto unprecedented scale, have so far encouraged property insurers’ market discipline; emerging signs of demographic change and the related reform of social security systems are impacting life business.

A glance at pension systems in the EU shows them differing as least as much as economic developments in the various EU countries. Everywhere, however, latter-year trends point in the same direction, with fewer state benefits and more private provision. Demographic development simply leaves most countries no other choice. This article examines the progress made on reform of Europe’s pension systems.

Following decades of rising prosperity private households have now accumulated total gross assets to the tune of almost EUR 10trillion and more and more older people have their stake. As personal wealth grows in Germany, so transfers of inherited assets are becoming increasingly important. Real property, financial assets and durables worth a good EUR 1 trillion are expected to be bequeathed by 2010. This means that each year wealth holdings in excess of total saving by the household sector will be transferred. While legacies do not create new wealth in macroeconomic terms, substantial structural shifts can nevertheless take place at the individual level.

Everywhere, private provision for old age is becoming more important. There is scarcely a country in Europe where demographic development has not already led, or will lead, to cuts in the level of state pensions. Fully funded private and occupational pension plans are becoming an ever more vital source of financial security in old age. Even in the United States, which is in a much more favorable demographic situation than Europe, the government is moving for the partial conversion of pay-as-you-go (PAYG)pensions to a more fully funded type of retirement-income regime. What possibilities do people have of stocking up dwindling payments from PAYG pension systems with their own assets? How do the United States and the EU-15 compare?

First reforms of the welfare system in the People's Republic of China were initiated in the eighties, but the restructuring has still not reached completion. To date only the urban population is entitled to receive welfare benefits while the majority, living in rural areas, is still largely precluded. The welfare state is in urgent need of expansion in the face of rising unemployment, an increasingly aging population and crumbling social structures.

Insurance demand hinges crucially on the scope of state welfare provision, risk sensitivity and overall economic trends. This is illustrated by the diverging trends on the main EU insurance markets.