Global reinsurance giant Swiss Re has stressed that persistent headwinds continue to impact insurance and reinsurance markets around the world, but has noted that growth is expected in both emerging and advanced markets in 2017.
The global insurance and reinsurance industry remains challenging, with ample capacity and intense competition from traditional and alternative sources driving rate declines across the sector, with profitability increasingly challenging to achieve.
Rates in the commercial insurance space continue to decline, albeit at a slower pace than previously, and with property lines under the most pressure from the flood of third-party reinsurance capital and also influenced by the benign loss experience, combined ratios are trending down in certain regions, explained Swiss Re in its Global insurance outlook Media Briefing this morning, featuring Dr. Kurt Karl, Swiss Re’s Chief Economist.
“The insurance industry faces headwinds, with moderate economic growth, and still ample capacity in the markets creating a challenging pricing environment.
“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,” said Karl.
For non-life risks, premium growth is evident in both emerging and advanced markets, although the trend is expected to be largely driven by emerging markets, such as Asia. In fact, Swiss Re expects that emerging Asia will be a key driver of premium growth for both non-life and life sectors in the coming months.
For commercial lines, Swiss Re explains that pricing continues to deteriorate across all regions and, with the exception of cyber (which appear to be hardening), rates remain under significant pressure in the majority of commercial business lines.
Discussing the property arena, Karl said; “In property catastrophe we’ve been lucky with profitability, as the natural catastrophes have been so low and we’ve had a good book of business that has been giving us reserve releases.”
“If you take into account the average of catastrophe losses and declining reserve releases you see a “dismal” RoE of 6%.”
As noted above, and discussed by Swiss Re during its media briefing, U.S. combined ratios are above 100% for both the calendar year and accident year, and continue to trend upwards. However, in Europe the story is different, with combined ratios for both staying below 100% and trending down, which the reinsurer attributed to better performing auto books of business.
The higher, above-100% combined ratios in the U.S. suggests the industry is experiencing a lack of profitability, and with a continuation of insurance and reinsurance headwinds widely expected at 1/1 2017 and beyond, re/insurers will be eager to pursue any potential growth opportunities.
The reinsurer states that non-life insurance premiums are expected to grow by 2.2% in 2017, and by 3% in 2018, while life premiums are expected to increase by 4.8% in 2017 and 4.2% in 2018.
For both non-life and life premiums growth Swiss Re says that emerging markets will be the key driver, as a rising middle class, better economic stability, and expanding populations suggest strong growth potential.
Continued growth in insurance premiums across the world is to be supported by continued, moderate economic growth over the next two years, says Swiss Re, with advanced markets like the U.S., the Euro area and the UK, expected to grow by 2%, 1%, and 1.5%, respectively, over the next two years.
Clearly the operating environment remains challenging for insurers and reinsurers, and Swiss Re is the latest global firm to highlight an expected continuation of the trend as the market moves into 2017 and beyond.
But importantly, the reinsurance company does underline growth potential in the space, especially in emerging markets, bringing to light the need for innovation and dedication among the sector to expand into new peril regions.