Non-life premiums slow in 2017, but growth still driven by emerging markets

Global non-life premium growth has slowed with an increase of 2.8% in 2017 to $2.23trn, compared to growth of 3.7% in 2016 and 4.2% in 2015, according to the latest sigma publication from the Swiss Re Institute.

Growth remained above the ten-year average of 2.1% and is still being largely driven by emerging markets where non-life premiums grew by 6.1%. Looking ahead, the Swiss Re Institute said it expects global non-life premiums to rise, led by the US, where the economy is strengthening.

The latest report, sigma No 3/2018 World Insurance in 2017: Solid, but mature life markets weigh on growth, reveals that growth trends diverged in advanced markets, with North America and western Europe showing improvements, while growth in all advanced Asia markets, except Taiwan, deteriorated. The slowdown in emerging market growth was largely driven by China, where the speed of expansion halved to 10%, about the same as other emerging Asia markets.

“In emerging markets, the non-life sector growth in 2017 has slowed but still remained robust. 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,” according to the report.

Non-life premium growth in advanced markets in 2017 was 1.9%, slowing from 2.3% in 2016 and 3.3% in 2015. In the US, the non-life industry benefitted from higher rates in motor business, while prices in commercial lines remained under pressure. In western Europe, growth remained moderate but was slightly up compared to 2016 and also above the ten-year average, mainly in personal lines such as health and motor, in the key markets. While premiums continue to recover solidly in Spain and Portugal, the market in Italy is still contracting. The moderate pace in central and eastern Europe continued, but premiums continued to decline in Latin America and the Caribbean, the report states.

In emerging markets, non-life premiums grew by 6.1% in 2017, lower than the 9.8% growth in 2016 and the ten-year average of 8.4%, largely driven by China, where growth fell from 20% in 2016 to 10% in 2017 due to lower motor premium rates. China nevertheless continues to be the growth engine in emerging markets, says the report. It points out that if China is excluded, growth remained modest in emerging markets at 2.5% in 2017 (2016: 2.1%). Emerging Asia (excluding China) saw solid growth of 9.7%, strengthened by double-digit growth in India and improvement in Thailand and Indonesia.

Despite a decline in growth in premiums in Russia, central and eastern Europe saw 3.3% growth supported by improving economic activity, especially in some of the EU member countries, according to the report. Elsewhere in emerging markets, Latin America and the Caribbean largely halted the decline in premium growth, with a fall of just 0.9% in 2017 compared to a decline of 6.0% in 2016, as Brazil and Argentina experienced positive growth.

In the Middle East and Central Asia, the premium contraction in Turkey and continuing stagnation in Saudi Arabia dragged down overall premium growth, while in Africa, premiums increased slightly (1.0%), due to weak growth in South Africa, while growth was mixed in other countries of the region, the report says.
“Slower, but still solid growth in emerging markets led to the slowdown in the non-life sector. Nevertheless, emerging markets, especially China, remain an important driver of global premium growth. China continued to be among the world’s fastest growing insurance markets, particularly in life,” the report states.

Total global premiums, including life, increased just 1.5% in real terms to nearly $5trn in 2017, compared with growth of 2.2% in 2016. This was largely due to slow growth in global life premiums (0.5% in 2017). The sigma report says falling life premiums in advanced markets such as the US and western Europe were the main cause. However, the Swiss Re Institute predicts that global life insurance premiums will improve during the next few years, driven by strong growth in China.

Jérôme Haegeli, Swiss Re Group chief economist, said: “Back in 1960, advanced and emerging Asia accounted for 5% of global insurance premiums versus 22% in 2017. For the next decade, the shift to China is likely to continue. Given the impressive number of infrastructure initiatives underway in China, China’s contribution to world insurance premiums could yet again exceed expectations. In the following decades, other markets such as India, Indonesia, Brazil, Mexico, Pakistan, Nigeria or Kenya could become more important.”

In terms of non-life premiums, the largest global market is the US with $830.3bn in 2017, a 37% share of the world market. Europe accounts for nearly 28% of the market ($621.2bn in 2017), and Asia 24% ($547bn). China is the second-largest country in premium terms with 10% of the world market ($223.9bn), followed by Germany with 5.6% ($126bn), Japan with 5.1% ($114.8bn), the UK with 4.2% ($93.5bn), France with 3.9% ($88.1bn) South Korea with 3.5% ($78.4bn) and Canada with 3% ($67.9bn).

The report also examines the global economy in 2017, pointing out that it improved considerably in 2017, with real gross domestic product rising 3.3%. “Advanced markets, except for the UK, experienced a broad-based cyclical upswing. In emerging markets, the improvement in commodity exporting countries, continued expansion of China and robust growth in central and eastern Europe contributed positively as well. Inflation began to rise in advanced markets, and largely remained within central bank targets, while easing in most emerging markets,” it states.

Market outlook
The Swiss Re Institute says it expects that the global non-life sector will continue to improve, supported by advanced markets, which will contribute more than half of the additional premiums in absolute terms. “Premium growth in advanced markets will be driven by the US, where the solid economic conditions and firming prices in some lines should lead to rising premiums. Although the natural catastrophe events towards the end of 2017 triggered some rate hikes, price increases have remained below expectations in the non-affected lines of business,” the report notes.

“Despite a similar strong economic recovery in continental Europe, premium growth in western Europe is expected to remain moderate,” Swiss Re predicts. It adds that in advanced Asia, where a planned lowering of rates in Japan for voluntary motor will affect premium growth adversely, recent earthquakes in South Korea could increase risk awareness and demand for insurance. Premium growth in Oceania is expected to be solid in 2018-2019, driven by continuing rate increases in motor, home and commercial lines.

“We predict that non-life growth will remain robust in emerging markets, although slightly lower than in the recent past. In emerging Asia, growth will be weaker due to less strong economic growth and ongoing soft rates. However, government policies (such as those promoting digitisation, market liberalisation, agriculture and health insurance etc) aimed at increasing insurance penetration should lend some support. In addition, investment in infrastructure as part of China´s Belt & Road Initiative should also boost insurance growth,” states the Institute.

In most other markets, Swiss Re is predicting premium growth. Central and eastern Europe will see growth driven by strong economic growth, solid labour markets and improvement in domestic consumption in EU member countries, and a moderate improvement in Russia. In Latin America, premium growth is expected to improve in 2018, supported by economic improvement, and in the Middle East, the expansionary fiscal policies should support the industry, while health insurance will continue to drive growth. In Africa, premium growth will improve as the economies continue their cyclical recoveries, particularly in the resource-intensive countries, notes the report.

The report concludes by stressing that while soft premium rates, particularly in commercial lines, and deteriorating claims experience will continue to hit the underwriting profitability of non-life insurers, increasing interest rates should gradually support investment returns.