The global insurance industry gained momentum in 2014, with total direct premiums increasing by 3.7 percent to $4.778 trillion after having stagnated the previous year, according to Swiss Re’s latest “sigma” study.
The life sector returned to positive growth, with premiums up 4.3 percent after a 1.8 percent decline in 2013, and non-life premium growth accelerated to 2.9 percent from 2.7 percent.
Non-life premium growth has been gradually improving since 2009, but still averages less than in the pre-crisis years. In non-life, the gain in global premiums in 2014 was driven by a substantially stronger performance in the advanced markets, sigma said.
In North America, premiums were up 2.6 percent from the previous year and in Western Europe premiums returned to positive growth (+0.6 percent) after years of decline and sluggishness.
Western Europe
This sigma reports includes a commentary on the stagnation of non-life premiums in Western Europe since 2007. While private medical insurance premiums in Europe have been a bright spot and continue to grow robustly, premium growth in the southern peripheral countries in particular has been very weak since the financial crisis, sigma said.
The report pointed to the example of casualty business – particularly motor – which has contracted sharply.
Nevertheless, Daniel Staib, co-author of the report, emphasized that the past seven years should not be seen as a benchmark for the outlook for growth in European non-life markets.
“The economic environment, though still weak, is likely to continue to improve, and when unemployment falls, non-life premiums, including motor, will recover,” he noted.
Emerging Markets
In the emerging markets, non-life premiums grew by a robust 8.0 percent in 2014, the report said. Key drivers were solid gains in China, mainly in the motor, credit & guarantee and agricultural lines, and in India where an improvement in business sentiment and economic growth boosted premiums.
In both the advanced and emerging markets, the post-crisis annual average premium growth rate has fallen short of the pre-crisis pace, Swiss Re said in its report.
Underwriting Results
Underwriting results in non-life were positive but slightly weaker than in 2013, because claims experience deteriorated slightly and contributions from prior-year reserve releases lessened, sigma said. Overall profitability in the life insurance sector improved slightly in 2014, driven by stronger stock markets, higher premium growth and cost containment efforts.
Both the life and non-life sectors continued to suffer from low interest rates and overall industry profitability remains below pre-crisis levels, said sigma.
The outlook for the non-life industry in advanced markets is more moderate. Premium rates remain low and although economic growth is improving, it remains sluggish, the report said. On the other hand, non-life premium growth in emerging markets is expected to remain robust.
Life premium growth is expected to remain fairly solid in the advanced regions in 2015 and increase in the emerging markets, particularly in Central and Eastern Europe and China. The U.S. life market is likely to improve alongside the strengthening economy and jobs market but in Western Europe, premium growth will slow from the strong gain in 2014.
Irrespective of positive premium developments, once again overall industry profitability in 2015 is expected to fall short of pre-crisis levels.
Investment yields – a key component of profitability in the life sector – will remain under pressure from the low interest rate environment. Life insurers’ profitability is unlikely to improve markedly any time soon, given that the burden from low yields and ongoing regulatory changes will continue. The same is true in non life, where weaker underwriting results – due to flat or even lower rates and a smaller contribution from reserves releases – will also weigh on earnings.
Life Sector Premiums
In the life sector, there were variations in premium growth outcomes across different regions. For instance, very strong growth in Oceania, and solid results in Western Europe and Japan more than offset yet another year of contraction in North America, the report said.
In the emerging markets, life premiums grew by 6.9 percent compared to 3.6 percent in 2013. The rise was driven mainly by China, where new distribution channels such as online sales and a recovery in bancassurance boosted premium income. In other emerging regions, however, premium growth generally slowed or even declined.
Life premiums in the advanced markets grew by 3.8 percent in 2014, continuing a volatile pattern of growth and contractions since 2010.
“Despite the acceleration in 2014, overall advanced-market life insurance premiums are about the same level as before the steep drop in volumes in 2008,” says Kurt Karl, chief economist at Swiss Re. “The gain in premiums in 2014 outpaced economic growth, increasing insurance penetration in the advanced markets, but premiums post-crisis have been growing at a much slower rate than before the financial crisis.”
Source: Swiss Re
Topics Trends Europe Pricing Trends China Swiss Re
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