Global non-life premium growth driven by China and emerging markets in 2016

Another “exceptional performance” in China, together with solid expansion among the emerging countries, saw global non-life premiums grow 3.7% in 2016, down from 4.2% in 2015 but more than the ten-year average growth rate of 2.0%, according to Swiss Re. The reinsurer’s latest sigma report, World insurance in 2016: the China growth engine steams ahead, reveals that premium growth in the emerging markets was 9.6%, with China seeing a 20% growth in non-life premiums. Emerging market premium growth was almost three times that of advanced markets. Non-life premium growth in the advanced markets slowed to 2.3% in 2016 (from 3.3% in 2015), due to lower economic growth and softer rates, but above the ten-year average of 1.0%. Premium growth was higher than GDP growth in 17 of the 29 markets for which data are available. Slower growth in advanced economies The sigma report shows that in the biggest market, the US, non-life premiums grew by 2.6% in 2016, despite continued soft pricing in commercial insurance. Personal and accident and health lines were strongest, the former supported by rate increases and continued robust growth in auto liability. However, profitability for the US non-life sector declined sharply, states the report, with the first underwriting loss in four years due to slowing reserve releases and above-average catastrophe losses, a lower investment result caused by falling yields, and a decline in realised capital gains. Western Europe saw a slowdown, which the report says was caused by considerably lower growth in Germany and France, two of the biggest markets in the region. Spain, Portugal and Greece continued to recover, while there was another decline in Italy. Underwriting profitability in Europe was roughly unchanged in 2016, with a sector combined ratio of about 95%. Advanced Asia saw non-life premium stagnation (0.3% growth), largely a result of a contraction in Japan, and lower economic growth and soft prices in the other markets. According to the Swiss Re report, emerging markets’ non-life premium growth was sturdy again, up 9.6% in 2016, which was above the ten-year average of 8.3%, although excluding China meant that emerging market premiums overall increased by just 1.7%. Other emerging Asian countries grew by 7.7%. However, there was a 3.7% contraction in Latin America and Caribbean, which Swiss Re says mirrors weak economic conditions, particularly in Brazil, although premiums in Mexico grew rapidly. And in Africa, flat premiums in South Africa, solid growth in north Africa and a steep decline in Nigeria (-12%) resulted in region-wide stagnation, the report states. In terms of the total market (non and life), direct insurance premiums written grew by 3.1% in real terms in 2016, down from 4.3% growth in 2015. Total insurance premiums in the advanced markets grew by just 0.7% in 2016, compared to 3.2% growth in the previous year. In general, Swiss Re reports slowing growth in the advanced regions and strong gains in the emerging markets. The report points out that in 2000, China was the 16th largest market globally in terms of total insurance premiums written. By 2016, it was the world's third largest market, with $466bn in total premiums – behind Japan ($471bn) and the US ($1.35trn). Swiss Re says non-life premiums in China were underpinned by a surge in demand for health insurance and sustained but slowing demand in motor insurance. Future growth Looking ahead, Swiss Re expects non-life premium growth to remain moderate, with stronger economic activity in the advanced markets supporting momentum. In North America, non-life premium growth is set to improve in 2017 and 2018, supported by a strengthening economic backdrop. In western Europe, non-life premium growth will remain subdued in an environment of moderate economic recovery. “Underwriting profitability is expected to deteriorate as a result of softer rates in commercial lines and motor insurance, while claims growth will remain moderate, and profitability will remain under pressure due to continuing low investment yields,” notes the report. In advanced Asia, improving economic conditions should support non-life premiums, although intense pressure on rates is likely to remain. As for emerging markets, the report forecasts premium growth to remain strong, although slightly lower than in the recent past. “Growth will be supported by the continuing efforts of the Chinese government to increase insurance penetration. State initiatives in India to develop specialty lines, and infrastructure investments in southeast Asia should also add to growth,” it notes. In central and eastern Europe, premiums are expected to continue to grow – driven by solid labour markets and improvement in domestic consumption. However, in Latin America premium growth is expected to be slow in the short term but improve over the longer term, supported by economic reforms, particularly in Brazil and Argentina. And in Africa, premium growth will recover only moderately, based on an improving economic environment in key markets and in Sub Saharan Africa. Swiss Re expects the profitability of non-life insurers to remain under pressure given low investment returns, and as underwriting results are impacted by the continued soft market conditions and dwindling reserve releases. The sigma study reports that the global economy grew by 2.5% in 2016, following what it called “a similarly underwhelming gain of 2.7% in 2015”, driven by political uncertainties and some unexpected developments. Growth in advanced markets underperformed, slipping to 1.7% in 2016 from 2.1% in the previous year, while emerging market growth improved to 3.8% from 3.6%, but Swiss Re notes that this was well below the ten-year average. India remained the world’s fastest growing major economy, with 7.0% GDP growth in 2016. The report concludes: “Global economic growth is expected to improve slightly in 2017, continuing a cyclical recovery despite ongoing political uncertainties and structural challenges.”

Global non-life premium growth driven by China and emerging markets in 2016

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