The future for insurance premium growth is bright, albeit It may not feel like it in the current market.
That’s the view of Swiss Re in its latest annual insurance outlook, based on the premise that the strengthening global economy will give the industry a much-needed boost.
The US and UK economies are currently growing at close to 2.5%, with Japan and the eurozone more subdued at 0.7% and 1.5% respectively.
All four economies are expected to see improved growth next year, along with a strong performance in emerging markets, kick-starting increased demand for insurance.
Global non-life premium growth slowed to 2.5% this year, following a 2.8% increase last year, but the global outlook for next year and 2017 is more positive, expected to hit 3% and 3.2%.
China’s economy grew 6.9% in real terms in each of the first three quarters of this year, slightly below the official target of 7%, due to weaker exports and lower investment growth.
From 2000-12, China averaged growth of about 10% per year as it invested substantially in infrastructure and buildings, leading to steadily climbing commodity prices. As China’s growth slowed, so did the prices.
“In the past these commodity cycles lasted a long time,” the report says. “Adjusting to the bust period takes time, but has immediate consequences for countries’ economies.
“Currently Brazil, Russia and Venezuela are in recession, while growth in countries such as Chile, Colombia, Australia and Canada has slowed significantly.
“Countries heavily dependent on commodities will not recover for at least a couple of years.”
Global premium growth figures are bolstered by strong-performing emerging markets, which are expected to see premium growth of 8.7% by 2017. Emerging Asia is the strongest, with growth of 12% predicted for the next two years.
Australian premium growth fell from 5.7% to -0.1% between 2013 and this year, but is expected to pick up to 0.7% next year and 2.1% in 2017.
Swiss Re Chief Economist Kurt Karl told insuranceNEWS.com.au economic performance is a key driver for premium growth, especially for commercial lines.
“For Australia, non-life premium growth is expected to remain weak [next year] before gradually picking up in 2017, as the economy improves,” he says.
“The current strong competitive environment is also currently constraining premium growth.”
Growth in the region is expected to remain robust due to market liberalisation and government measures to increase insurance penetration.
The report says the pricing outlook for global non-life insurance remains challenging, due to abundant capital and benign claims development.
“Even so, the current trend towards rate softening may be short-lived,” it says.
Real premium growth in the non-life reinsurance sector is expected to fall to -0.5% next year before recovering to 2.9% in 2017 “driven by stronger sales in primary insurance in all regions”.
Property catastrophe reinsurance rates are “close to bottoming out”, but pressure on profits will continue to encourage (re)insurer mergers and acquisitions next year, the report predicts.
“The business model of a small-focus specialised underwriter no longer works in the current soft market,” it says. “Instead, smaller (re)insurers are being pressured to consolidate in order to increase scale and improve their capital cost through more diversification.”
Despite ongoing challenges, Dr Karl stresses that global economic growth is “a good sign” for insurers.
“This is especially so in the emerging markets, where urbanisation and growing wealth will support overall sector growth,” he says. “We’ve said for some years now that emerging markets are the growth engines for the insurance industry – and this is expected to continue for at least several years more.”