Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Insurance premium growth slowed in 2013, but expected to strengthen


The growth rate of global non-life and life insurance premiums was slower in 2013, then the rate seen in 2012, but both are expected to strengthen during 2014, according to one of the world’s largest reinsurance firms Swiss Re.

Swiss Re’s latest sigma report looks at the growth rate of insurance premiums around the globe. Last year the report found premiums rising at a faster rate and the reinsurer said it expected non-life premium growth to expand, but the growth spurt seems to be taking longer to kick in than perhaps expected.

Global insurance industry premiums written in 2013 grew by 1.4% in real terms to USD 4 641 billion in 2013 after a 2.5% increase in 2012. Swiss Re says the slowdown in premium growth is largely due to life insurance market weakness in advanced markets, however non-life premium growth also slowed.

Global life premiums were up just 0.7% in 2013, with weak sales in North America and the advanced Asian markets offsetting a strong performance in Western Europe, Oceania and most emerging markets. Non-life premiums grew by 2.3%, also less than the previous year as growth slowed in the advanced and emerging markets. Overall profitability in both the life and non-life sectors improved, despite the impact of still low-interest rates on investment returns.

Weaker global economic factors are to blame for a slide in non-life premium growth in some developing nations. Swiss Re explains:

Global non-life premium growth slowed to 2.3% in 2013 from 2.7% the year before, with total premiums at USD 2 033 billion.  In emerging markets non-life premium growth remained strong at 8.3% in 2013 after 9.3% in 2012, and was solid across all regions with the exception of Central and Eastern Europe (CEE). The expansion in emerging Asia was supported by sustained strong growth in Southeast Asia and China. In India, however, non-life sales growth slowed to 4.1% from 8.9% in 2012, due to a slower economy and weaker business sentiment.

Non-life premium growth in advanced markets was  just 1.1% in 2013, down from 1.5% the previous year. Swiss Re explains that economic factors are also a cause of this slow down in the advanced economies, showing that insurance markets remain depressed worldwide. Swiss Re explains:

This was mainly due to a still-depressed market in Western Europe, with premiums down 0.3% due to the weak economic environment. In advanced Asia, premium growth slowed to 1.7% from 4.7% in 2012, mainly due to a sharp tax-reform induced slump in South Korea. In the US, premiums grew steadily by 1.7% and in Canada by 3.2%.  Non-life growth in advanced markets has remained soft since the financial crisis in 2008. Premiums increased by an annual average of 0.7% between 2009 and 2013 compared with 1.9% in the 2003-2007 period.

Swiss Re expects the growth rate of both non-life and life premiums will strengthen as the economic recovery continues in many regions of the world. The firming economy and labour markets in advanced economies will help both non-life and life premiums to grow, while emerging market growth should also hold up, said Swiss Re.

The report is not as bullish as previous ones, published by Swiss Re and others, on the prospects for emerging market premium growth to buoy the insurance and reinsurance industry. Previous reports have suggested that strong growth should persist in emerging economies as insurance penetration grows. The slowdown in 2013 seems to have tempered the outlook a little for Swiss Re, although looking at the data there is still very strong premium growth in emerging markets.

For the traditional reinsurance market, which is looking for new opportunities to replace lost business in core markets where pricing has declined and competition increased, considerable emphasis has been placed on the emerging market reinsurance opportunity. However, reinsurance penetration can only follow insurance penetration, meaning that growth of reinsurance premiums in these emerging regions is likely tied to insurance premium growth and is likely to grow more slowly as a result.

Growth of GDP in most regions of the world remains below average, which drives insurance uptake and penetration to a degree. While the GDP growth rates of the world remain below near-terms averages and interest rates remain low insurers will find they need to consolidate on advanced market opportunities to a degree. With reinsurers under pressure due to competition and pricing many are looking to primary insurance as a new growth avenue. This will up the levels of competition in the primary insurance market which could exacerbate rate softening here as well.

So while premium growth is expected to continue globally and perhaps strengthen over the coming years, the news is not likely to provide any solace for those impacted by declining prices, competition and the growing influence of the capital markets and alternative capital in re/insurance.

However, it should be noted that with the rate of innovation accelerating in insurance and reinsurance and technology advancing rapidly we could see new initiatives which open up markets more broadly, accelerating the rate of premium growth. Also, initiatives which look to new ways to create and support insurance and reinsurance markets through science and technology based pricing rather than subsidisation could also bring with them opportunities for markets to grow and premiums to increase.

Total real premium growth in advanced and emerging markets since 1980

Total real premium growth in advanced and emerging markets since 1980 - Source: Swiss Re sigma report

Still, global insurance premium growth will continue to drive a greater requirement for reinsurance capital, as it remains difficult for insurers to provide significant amounts of risk capital without a reinsurers backing.

With insurance penetration increasing followed by reinsurance moving into new regions or perils growth opportunities will also emerge for insurance-linked securities (ILS) and the reinsurance convergence market, as emerging economies continue to mature.

You can download the full report from Swiss Re via its website.

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