Emerging markets will drive growth story in 2013 predicts Swiss Re

The reinsurance group said that the US economy is expected to make a ‘modest’ contribution to global growth next year, while the euro area slowly emerges from its recession. As a result non-life insurance premium growth will benefit from the gradual improvement in economic activity and a small rise in prices. And, after stalling this year, life insurance premium growth is projected to grow by 2% in 2013 said Swiss Re. hideThe group’s ‘Global re/insurance review 2012 and outlook 2013/14’ provides what it terms as a ‘mildly optimistic’ view of the future of the global economy and insurance markets. Swiss Re said this week that economic activity is expected to be ‘moderately stronger’ next year and insurance pricing is projected to improve by which it means harden of course. It forecasts that global non-life direct premiums will grow by 3% in real terms. “This will be fuelled by emerging market growth of nearly 8%”, said the reinsurer. “After not growing this year, primary life insurance premiums are expected to increase by about 2% next year as emerging markets strengthen and advanced markets recover from a decline last year,” stated the reinsurer. Non-life reinsurance markets will continue to grow, while life reinsurance shrinks, it added. Swiss Re states that the global economy is currently ‘fairly weak’. But the reinsurer said that an improving housing market in the US, fiscal and monetary stimulus in China and a ‘slow turnaround’ in the euro area are expected to boost growth in 2013. Monetary policy will remain ‘accommodative’ in the major economies well into 2015 and thus provide the stimulus needed to sustain growth, predicts the reinsurer. But low interest rates will continue to hamper insurers' investment returns, it added. Swiss Re said that inflation will remain ‘tame’ because wage rises will be ‘modest’ given only a gradual decline in unemployment rates. Kurt Karl, head of Swiss Re's sigma programme and an author of the report, said: "Global growth will not be robust next year, but any improvement is welcome in these stressful times." Non-life premiums accelerated ‘a bit’ in 2012 and this will continue into next year as rates rise at a ‘moderate pace’, stated the reinsurer. Underwriting results improved in 2012, compared to 2011 which was a year with high catastrophe losses of course. Swiss Re noted that rates were stable to slightly up this year but any gains made by the insurers were not enough to compensate for decreasing investment yields. But, next year, reserve releases are expected to dry up and will support a stronger pace of price increases, particularly in the casualty lines, added the reinsurer. Swiss Re said that currently capacity is adequate as it appears robust under GAAP accounting because of low interest rates which boost the mark-to-market value of insurers' bond portfolios. Thomas Holzheu, one of the authors of the report, clarified: "The expected price increases in the casualty lines will likely be gradual due to the weak economic environment and fierce competition." Developments in the reinsurance segment are following the primary sector closely, but profits will be slightly lower due to a higher than average cat year. This outlook assumes that the estimates for losses from Hurricane Sandy are consistent with recent forecasts from the major cat modellers.” As the US and Europe claw their way out of recession and make a minor but welcome contribution to growth again, emerging markets will remain the main source of growth. Clarence Wong, Swiss Re Chief Economist for Asia who also contributed to the report, pointed out: "All emerging market regions are expected to maintain robust growth in life and non-life premiums next year." Growth in life insurance will increasingly focus on risk products because regulatory changes and low investment yields will continue to dampen savings product growth, said the reinsurer. ‘Huge’ protection gaps, which exist in many key emerging markets including India and China, will help drive the shift to risk products, it added. Swiss Re said that life insurance premium growth will continue to be ‘robust’ in the Middle East and Latin America. In central and eastern Europe the reinsurer forecasts that premium growth will ‘moderate a bit’ along with economic activity as the euro debt crisis continues. Non-life premium growth ‘moderated’ from about 9% growth in 2011 to 8% growth in 2012. “Cat losses were fairly low in emerging markets so underwriting profitability improved. Premium growth will be driven by the growing wealth in emerging markets, which has been particularly beneficial to motor lines. Ongoing regulatory developments will strengthen the industry and enhance profitability in the long run,” concluded Swiss Re.

Emerging markets will drive growth story in 2013 predicts Swiss Re

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