Swiss Re Study Shows Growth in Global Insurance

Despite a “very challenging economic environment” insurance premium income growth resumed in 2012, according to a Swiss Re sigma study on world insurance.

The study show that total global premiums written increased by 2.4% in real terms in 2012 to US$4,613bn, although Swiss Re noted that “developments in Western Europe, China and India weighed on the result.”
Global life insurance premiums expanded by 2.3% to US$2,621bn, partly unwinding some of the -3.3% contraction in 2011 thanks to improvements in emerging markets and solid demand in the US and advanced Asian markets. “While the increase is encouraging, growth remains below the average pre-crisis rate,” Swiss Re commented.

Life premium volume increased 4.9% in emerging markets. This came after a sharp decline in 2011 due to contractions in India and China following changes to regulations relating to insurance distribution. In advanced markets, growth was 1.8% against 3% in 2011, largely supported by robust performance in advanced Asian markets and the US, while life insurance markets in Western Europe continued to shrink.

For non-life insurance classes, premiums rose by 2.6% to US$1,992bn. The increase followed growth of 1.9% in 2011, on the back of continued economic expansion in emerging markets and selective price increases in some advanced markets. While the profitability of life insurers remains subdued their non-life underwriting results improved modestly. Low interest rates continue to depress investment income, but are boosting reported accounting capital and solvency levels under generally accepted accounting principles (GAAP).

In emerging markets, non-life premiums expanded by 8.6% in 2012, from 8.1% the previous year. The recovery in the advanced markets gained momentum with growth picking up to 1.5% from 0.9%, the fourth consecutive year of rising premiums following the decline in 2008.

“Premium growth held up well given the challenging economic environment,” said Daniel Staib, one of the authors of the study. “The non-life market was supported by steady increases in risk exposures in emerging markets and by selective premium rate increases in some advanced markets, particularly in Asia.

“In terms of profitability, the historically low level of interest rates continues to be a problem -particularly for life insurance companies. Alongside increases in revenues, profitability in non-life improved moderately backed by benign catastrophe losses and reserve releases. At the same time, the industry remains well capitalised, even though GAAP figures overstate current capital levels because of low interest rates.”

The Outlook for Growth

The sigma study predicts that premiums will continue to increase but at a moderate pace, with growth expectations for the short-term remaining below pre-crisis trends. In life, the expansion in emerging markets is likely to accelerate as insurers in China and India adapt to the new regulatory environment, but the weakness in Western Europe will dampen developments in advanced markets.

The non-life side is more positive as the sector will benefit from the strong economic performance of emerging markets and selective rate increases in advanced markets. However, rate increases will likely be moderate given the prevailing surplus capacity in the markets, according to Mahesh Puttaiah, one of the authors of the study.

Economic growth and rising penetration will continue to increase the emerging markets’ share of total premiums over the next 10 years. Ageing populations will boost demand for life insurance products also in emerging markets, while non-life insurance will profit from increasing urbanisation, an expanding middle class and rising economic wealth.

“The rise in importance of emerging Asia in the global economy and insurance markets witnessed over the past 20 years is set to continue for at least another decade,” said Kurt Karl, Swiss Re’s chief economist. However, demographic patterns suggest that by 2062, Asia’s share in the world population will actually decrease from 60% to 53%, mainly due to the developments in China, where the working age population will start to contract from 2018.

“At the same time, Africa’s population share is projected to increase from 15% currently to roughly 27%. This positions Africa well, from a demographic point of view, to become an important part of the global insurance markets over the next 50 years.”

Premium Growth Since 1980.

Swiss Re: Major insurance markets since 1980

Source: Swiss Re Economic Research & Consulting.

Developments in the Major Insurance Markets in 2012.

Swiss Re: Developments in Major Insurance Markets

Source: Final and Provisional Figures Released by Supervisory Authorities and Insurance Associations. Estimates by Economic Research & Consulting.

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