News Life and Health06 Jul 2018

Global:Emerging markets continue to drive world insurance growth

| 06 Jul 2018

Global insurance premiums increased by 1.5% in real terms to nearly $5 trillion in 2017, after rising 2.2% in 2016, with emerging markets continuing to be a key driver.

Global life premiums increased 0.5% in 2017, while global non-life premiums rose 2.8%. according to the latest Swiss Re Institute sigma study released yesterday and titled “World Insurance in 2017”.

Growth in both the life and non-life sectors slowed. Falling life premiums in advanced markets such as the US and Western Europe were the main cause of drag on overall global premium growth. Emerging markets, especially China, continued to drive growth.

The Swiss Re Institute expects global non-life premiums to rise, led by the US, where the economy is strengthening. It also predicts that global life insurance premiums will improve over the next few years, driven by strong growth in China.

Global life premiums increased to roughly $2.7 trillion in 2017, while global non-life premiums rose to approximately $2.2 trillion. Growth in both the life and non-life sectors slowed.

Emerging markets premium growth

In emerging markets, life and non-life premiums increased 14% and 6.1% respectively in 2017. In the non-life sector, growth in 2017 has slowed but still remained robust. The slowdown in emerging markets was largely driven by China, where the speed of expansion halved to a still solid 10%.

The insurance markets in emerging countries have outperformed the corresponding economies for decades, given the current low levels of insurance penetration. In these markets, incomes, revenues and assets of individuals and companies are growing, which in turn boosts the demand for insurance.

Premiums in advanced markets face headwinds

Non-life premium growth in advanced markets remained broadly stable in 2017 at 1.9%. In the US, the non-life industry benefitted from higher rates in motor business, while prices in commercial lines remained under pressure.

Life premiums in advanced markets, which fell 2.7% in 2017, were the primary cause of the drag on global growth. The North American life market declined by 3.5%, driven by supply side factors, as players exited the retirement savings business, including variable annuities. Among advanced Asian markets, which were down 2.1%, expectations of lower mortality rates have delayed life insurance purchases in Japan.

The life sector in advanced markets has failed to recover from the 2008 financial crisis. Well documented factors, such as the depressed economic environment, stagnant wages combined with low interest rates and changing solvency regimes made traditional savings products with interest rate guarantees both unattractive for consumers and life insurers.

Outlook for global life and non-life markets

Over the next few years, the Swiss Re Institute predicts that global life insurance premiums will rise, driven by strong growth in China. However, profitability continues to be under pressure due to low interest rates, increasing competition and regulatory changes.

Dr Jérôme Haegeli, Swiss Re group chief economist, says, "The ongoing low interest rate environment remains a major concern for life insurers' profitability and their ability to offer attractive long term life insurance products, particularly in combination with Solvency II types of regulatory frameworks."

The Swiss Re Institute also expects global non-life premiums to increase, led by advanced markets such as the US, where the economy is strengthening. Although the insurance markets in emerging countries have solidly outperformed the corresponding economies for decades, the Swiss Re Institute estimates that, in the years to come, advanced markets will contribute more than half of the additional premiums in absolute terms.

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