Emerging Markets Serve as Growth Engines for Industry: Swiss Re

The global economy is expected to strengthen moderately next year, which will support insurance premium growth in most regions, according to Swiss Re’s latest publication titled “Global insurance review 2015 and outlook 2016/17.”

Demand for non-life insurance is expected to grow, led by an 8 percent to 9 percent annual gain in emerging markets during 2016 and 2017, the review said.

The life insurance sector faces challenges, in particular from ongoing low interest rates. Nevertheless, Swiss Re said, global life premiums are forecast to rise by about 4 percent in each of the next two years — once again led by the emerging markets.

“Global economic growth is a good sign for insurers. This is especially so in the emerging markets, where urbanization and growing wealth will support overall sector growth,” said Kurt Karl, Swiss Re’s chief economist.

“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,” he added.

The U.S. and U.K. economies are currently growing by about 2.5 percent, while the growth of real gross domestic product in Japan and the euro area are a more subdued 0.7 percent and 1.5 percent.

Respectively, the Swiss Re review said, noting that these four economies are all expected to see slightly better growth in 2016.

Powering ahead are the emerging markets, which are expected to grow by about 5 percent in each of the next two years, an improvement on the current 4 percent pace, according to the report.

Principal Headwinds

The three principal headwinds buffeting the global economy are slower growth in China, lower commodity prices and a Federal Reserve rate increase, the review went on to say.

While these headwinds pose a risk to the baseline forecast, they are “unlikely to derail the improving growth momentum,” Swiss Re said.

The improved outlook and expected monetary policy tightening in the U.S. and U.K., will likely raise government bond yields, the report continued.

Non-Life Premium Growth

The report predicted that global primary non-life premium growth will improve to 3 percent in 2016 and 3.2 percent in 2017, from 2.5 percent this year, said Swiss Re, noting that main drivers of growth will be in the emerging markets.

Indeed, emerging markets premiums will increase an estimated 7.9 percent and 8.7 percent in 2016 and 2017, respectively, after a 5.6 percent gain in 2015.

Premium growth is expected to be strongest in Asian emerging markets (12 percent annually), with a recovery expected in Central and Eastern Europe after contraction in 2014 and 2015.

On the other hand, growth in advanced markets is expected to slow slightly as a result of softening prices and only modest improvement in economic growth, the report continued.

“Despite the challenging pricing environment, underwriting profits in primary non-life insurance have been sustained by low natural catastrophe losses and a continuation of reserve releases from past years,” Swiss Re said.

The same trend is applicable for the non-life reinsurance sector, which has seen strong underwriting results based on low natural catastrophe losses.

“However, with falling prices, profit margins have eroded over the past two years,” the report cautioned. “Property catastrophe reinsurance rates are currently close to bottoming out and the rate softening in most lines is expected to moderate or come to a standstill.”

In casualty and specialty lines, Swiss Re said, “significant differences in pricing developments by market and line of business are expected.”

Life Re/Insurance

“Primary life insurers face significant downside risks in the short to medium term from the modest global growth outlook, persistently low interest rates, volatility in financial markets and regulatory changes,” the report said.

Real premium insurance income is expected to rise by about 2.5 percent in advanced markets during 2016 and 2017, up from about 2 percent this year, according to Swiss Re.

A more robust picture will once again come from emerging markets where life premiums will grow by an estimated 10.7 percent in both 2016 and 2017, the report noted.

On the life reinsurance side, premium growth is expected to decline slightly in advanced markets during 2016 and 2017 in real terms. Conversely, expected growth in emerging market life reinsurance premiums will run about 7 percent to 8 percent each year in 2016 and 2017.