Emerging Asia to bolster global non-life and life market growth in 2017/2018: Swiss Re

The Zurich-based reinsurance giant’s global insurance review and outlook for 2017/2018 states that “moderate” global economic growth is expected to support insurance sector growth during the next two years.

Growth in global non-life insurance premiums will be driven by the emerging markets. Pricing in commercial lines will continue to deteriorate, but at a slower pace, and demand for cyber risk solutions will continue to rise.

Global life insurance premiums are forecast to grow by 4.8% in 2017 and 4.2% in 2018 in real terms. Emerging market life premiums will grow strongly, driven by demand for savings vehicles, particularly in emerging Asia, notes Swiss Re.

hide

The reinsurer predicts that growth in global non-life premiums will fall slightly, from 2.4% in 2016 in real terms to 2.2% in 2017, and accelerate to 3.0% in 2018.

In the life sector, global premiums are expected to grow by 4.8% in 2017 and 4.2% in 2018.

“The emerging markets, in particular emerging Asia, will be the main driver of premium growth in both the non-life and life sectors,” states the firm. Of the major economies, the US is expected to grow by slightly more than 2% in inflation-adjusted (real) terms annually during the next two years. “The election of Donald Trump as president-elect was not explicitly incorporated into the US forecast, but this development is unlikely to have a major impact on insurance markets over the next two years,” states Swiss Re.

The euro area and the UK are forecast to grow by about 1.0% and 1.5%, respectively, while Japan should grow by less than 1.0%. China is expected to grow by around 6.5%.

Swiss Re believes that monetary policy will remain “accommodative” for the next two years, even as the US is expected to gradually raise rates. The reinsurer believes that other central banks will keep their policy rates and quantitative easing policies intact. With the Fed raising rates, US ten-year government bond yields will likely rise, pulling yields in Europe slightly higher, added the reinsurer.

“The insurance industry faces headwinds, with moderate economic growth and still ample capacity in the markets creating a challenging pricing environment,” said Kurt Karl, Swiss Re’s chief economist. “Nevertheless, premium volumes continue to grow in both the advanced and emerging markets, along with economic activity and an increase in the insurance penetration rate, particularly in emerging markets,” he added.

Non-life insurance sector premium volumes are expected to increase by 2.2% in real terms in 2017 (after 2.4% in 2016) and by 3.0% in 2018. Emerging markets are expected to drive the improvement.

Premium growth in emerging markets is forecast to increase steadily from an estimated 5.3% in 2016 to 5.7% in 2017 and 6.7% in 2018.

“An improvement in commodity prices and strengthening economic activity will stimulate increased demand for insurance from the emerging regions. Emerging Asia will likely have the strongest growth in non-life premiums, forecast to be nearly 8% in 2017 and 9% in 2018. A contributing factor will be the investment opportunities presented by China’s ‘One Belt One Road’ programme, which is expected to generate an increase in demand for commercial insurance,” predicts Swiss Re.

But the reinsurer notes that the pricing environment in the global non-life sector remains “challenging”. However, increased awareness of the value of cyber insurance is one bright spot.

“Pricing in commercial lines continues to deteriorate across all regions, but at a slower pace. In contrast to many other commercial lines, however, rates in cyber insurance continue to harden but at a slowing pace and could level out soon.

Increased awareness of the risks associated with cyber attacks and data breaches is boosting demand for related insurance solutions, and represents a significant growth opportunity for the non-life sector,” states the reinsurer in its report.

Swiss Re points out that profitability in non-life markets has been sustained by low natural catastrophe losses and reserve releases. Assuming average natural catastrophe losses and shrinking reserve releases, return on equity is forecast to decline from 8% in 2015 to around 6% in 2016-18, warns the reinsurer.

In non-life reinsurance, global premium growth is expected to be 2.7% in 2017 and 2.9% in 2018, based on increasing cessions from emerging markets, states Swiss Re.

Emerging market life premiums are forecast to grow by 14.9% in 2017 and by 10.9% in 2018. This will be sustained by “robust” growth of savings products, particularly in emerging Asia. “China will make a strong contribution with the government targeting an increase in insurance penetration to 5% by 2020, from 3% in 2014,” concludes Swiss Re.