Swiss Re sigma Study Finds Global Insurance Premium Growth at 2.4%

June 26, 2013

Swiss Re’s latest sigma study reveals that “total global premiums written increased by 2.4 percent in real terms in 2012 to $4.613 trillion. Life premiums expanded by 2.3 percent unwinding some of the contraction in 2011, thanks to improvements in emerging markets and solid demand in the US and advanced Asian markets.

“In non-life, premiums rose by 2.6 percent on the back of continued economic expansion in emerging markets and selective price increases in some advanced markets. Profitability of life insurers remains subdued but non-life underwriting results improved modestly. Low interest rates continue to depress investment income, but are boosting reported accounting capital and solvency levels under GAAP.”

In the life insurance sector Swiss Re reported that global life insurance premiums “increased by 2.3 percent in 2012 to $ 2.621 trillion after contracting by 3.3 percent the previous year.” The report notes that, “while the increase is encouraging, growth remains below the average pre-crisis rate.

“Life premium volume increased 4.9 percent in emerging markets. This came after a sharp decline in 2011 due to contractions in India and China following changes to regulations relating to insurance distribution. In advanced markets, growth was 1.8 percent (2011: 3 percent), largely supported by robust performance in advanced Asian markets and the US, while life insurance markets in Western Europe continued to shrink.”

In contrast the report found that “premium volume for non-life business increased by 2.6 percent in 2012 to $1.992 trillion (2011: 1.9 percent). However, this is still less than the average pre-crisis growth rate. In emerging markets, non-life premiums expanded by 8.6 percent in 2012 (2011: 8.1 percent). The recovery in the advanced markets gained momentum with growth picking up to 1.5 percent (2011: 0.9 percent), the fourth consecutive year of rising premiums following the decline in 2008.”

Daniel Staib, one of the authors of the study, said: “Premium growth held up well given the challenging economic environment. The non-life market was supported by steady increases in risk exposures in emerging markets and by selective premium rate increases in some advanced markets, particularly in Asia.”

He added that in terms of profitability, “the historically low level of interest rates continues to be a problem – particularly for life insurance companies. Alongside increases in revenues, profitability in non-life improved moderately backed by benign catastrophe losses and reserve releases. At the same time, the industry remains well capitalized, even though GAAP figures overstate current capital levels because of low interest rates.”

Mahesh Puttaiah, one of the authors of the study, explained: “Premium growth expectations for the short-term remain below pre-crisis trends. In life, the expansion in emerging markets will likely accelerate as insurers in China and India adapt to the new regulatory environment, but the weakness in Western Europe will dampen developments in advanced markets. The non-life side is more positive since the sector will benefit from the strong economic performance of emerging markets and selective rate increases in advanced markets. However, rate increases will likely be moderate given the prevailing surplus capacity in the markets.”

Over the long term Swiss Re’s study signaled further “economic growth and rising penetration” as continuing “to increase the emerging market share of total premiums over the next ten years. Ageing populations will boost demand for life insurance products also in emerging markets, while non-life insurance will profit from increasing urbanization, an expanding middle class and rising economic wealth.”

Kurt Karl, Swiss Re’s Chief Economist, pointed out: “The rise in importance of emerging Asia in the global economy and insurance markets witnessed over the past 20 years is set to continue for at least another decade.

“However, demographic patterns suggest that by 2062, Asia’s share in the world population will actually decrease from 60 percent to 53 percent, mainly due to the developments in China, where the working age population will start to contract from 2018. At the same time, Africa’s population share is projected to increase from 15 percent currently to roughly 27 percent.”

He added that Africa will benefit as a result. “From a demographic point of view,” Karl said the continent would “become an important part of the global insurance markets over the next fifty years.”

This sigma study is the first comprehensive assessment of the performance of global insurance markets in 2012. The 79 markets where data or estimates for 2012 are available, account for 99.2 percent of global premium volume. Overall, the report is based on 147 insurance markets.

Source: Swiss Re

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