New Swiss Re sigma study Reveals Global Premium, Capital Growth

A new study in Swiss Re’s sigma series concluded that the global insurance industry has returned to a pattern of growth. The study – World insurance in 2010 – reveals growth in global premium volume and capital. Premium volume “grew in three quarters of the 78 markets covered in the publication,” and was “particularly strong in emerging markets.”

Worldwide insurance premium volume increased 2.7 percent on “an inflation-adjusted basis driven by economic growth, rebound in capital and solvency,” said the report. Life premiums rose 2.3 percent, while non-life premiums were up 2.1 percent. “Emerging countries continued to gain in importance – China became the 6th largest insurance market.”

However, the study also noted that investment income suffered from low interest rates, which decreased profitability, even as “capital and solvency in the insurance industry improved robustly.”

In the non-life sector emerging and newly industrialized Asian countries were the leaders, as “the strong economic rebound increased demand for insurance cover.” Premium volume also rose in Europe and the U.S. The industry’s capital “continued its positive development and rose to a record high in 2010.”

However, the picture for P&C insurers underwriting results shows deterioration by most European and U.S. companies. The “dismal motor results” were to blame in large European markets. “In the eight largest markets, premium income did not fully cover claims payments and other costs for the second year in a row.”

Daniel Staib, one of the authors of the new sigma study, noted: “The average combined ratio of these leading markets worsened to 103 percent, compared to 101 percent in 2009. Given recent catastrophe loss events, it is clear that global underwriting results will deteriorate further in 2011. This indicates that prices are inadequate.

“In some markets, such as Italy and the UK, rates began to mount, most notably in the personal motor business, signaling that the underwriting cycle is at long last beginning to turn,” he added.

The 3.2 percent growth in global life insurance premiums – totaling $2.52 trillion – was “especially strong in Asian emerging markets and robust in some large European markets. In the U.S. and the UK premiums declined, though at a more modest pace than 2009. While low interest rates negatively impacted life insurers’ profitability, they contributed to a strong improvement in the life industry’s accounting capital position by increasing the value of life insurers’ bond portfolios.”

Staib described the “dominating picture” for the industry as showing a “long term growth trend.” He noted that “in some continental European countries, growth in the past year could be said to be very strong because sales of single premium products with comparatively attractive guarantees increased strongly.”

The study found that life premiums rose by 13 percent in emerging markets. South & East Asia had the strongest growth, at 18 percent, led by China, with strong demand for both traditional and investment-linked products. Latin America and the Caribbean were not far behind, at 12 percent, led by Brazil.

While Swiss Re’s study is largely optimistic on the prospects for continued growth in the future, there are certain risks. The main ones are “an escalation of the euro sovereign debt crisis or a major oil shortage caused by turmoil in major oil producing countries.”

The study is the first public assessment of the performance of global insurance markets in 2010. The 78 markets, where data or estimates for 2010 are available, account for 98 percent of global premium volume. Overall, the report is based on 147 insurance markets.

Source: Swiss Re