Emerging Markets to Drive Insurance Sector Growth in 2017: Swiss Re

November 28, 2016

The global economy is expected to grow moderately over the next two years, supporting continued growth in insurance premium volumes, according to a Swiss Re report.

Growth in global non-life premiums is forecast to fall slightly from 2.4 percent in 2016 in real terms to 2.2 percent in 2017, and accelerate to 3.0 percent in 2018, said Swiss Re’s “Global insurance review and outlook for 2017/18.”

However, emerging markets, in particular emerging Asia, will be the main driver of premium growth in both the non-life and life sectors, the report continued. “Premium growth in the emerging markets is forecast to increase steadily from an estimated 5.3 percent in 2016 to 5.7 percent in 2017 and 6.7 percent in 2018,” Swiss Re predicted.

In the life sector, global premiums are expected to grow by 4.8 percent in 2017 and 4.2 percent in 2018, the report said.

Of the major economies, the U.S. is expected to grow by more than 2 percent in inflation-adjusted (real) terms annually over the next two years, Swiss Re confirmed.

“The election of Donald Trump as president-elect was not explicitly incorporated into the US forecast, but this development is unlikely to have a major impact on insurance markets over the next two years,” the report explained.

The Euro area and the UK are forecast to grow by about 1.0 percent and 1.5 percent, respectively, while Japan should grow by less than 1.0 percent, the report said, noting that China is expected to grow by around 6.5 percent.

“The insurance industry faces headwinds, with moderate economic growth, and still ample capacity in the markets creating a challenging pricing environment,” says Kurt Karl, Swiss Re’s chief economist. “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.”

Emerging Asia

An improvement in commodity prices and strengthening economic activity will stimulate increased demand for insurance from the emerging regions, the report said, noting that emerging Asia will likely have the strongest growth in non-life premiums, forecast to be nearly 8 percent in 2017 and 9 percent in 2018

A contributing factor will be the Chinese investment opportunities offered by China’s One Belt One Road program, which is likely to generate an increase in demand for commercial insurance, said the Swiss Re report.

Global Non-Life Premiums

Pricing in the global non-life sector remains challenging, the report affirmed, noting that commercial lines rates are continuing to deteriorate across all regions, but at a slower pace.

“In contrast to many other commercial lines, however, rates in cyber insurance continue to harden but at a slowing pace and could level out soon,” the report contended.

Increased awareness of the risks associated with cyber attacks and data breaches is boosting demand for related insurance solutions, and represents a significant growth opportunity for the non-life sector, Swiss Re said.

Profits in the non-life industry have been sustained by low levels of natural catastrophes as well as reserve releases, the report said.

“Assuming average natural catastrophe losses and shrinking reserve releases, return on equity (RoE) is forecast to decline from 8 percent in 2015 to around 6 percent in 2016-18,” according to Swiss Re.

“In non-life reinsurance, global premium growth is expected to be 2.7 percent in 2017 and 2.9 percent in 2018, based on increasing cessions from emerging markets.”

Source: Swiss Re

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