Global Premium Growth Slows in 2016 – with China as Exception: Swiss Re
Global insurance premiums increased by 3.1 percent in real terms during 2016, down from growth of 4.3 percent reported in 2015, according to Swiss Re Institute’s sigma study.
The report described last year’s global premiums as “fairly solid,” despite moderate global economic growth of just 2.5 percent. Premiums in nominal terms (taking into account currency depreciations) were up 2.9 percent to US$4.732 trillion.
The slower rate during 2016 was mainly due to considerably lower growth in the advanced markets, while China pushed up growth among the also slowing emerging markets, said the report titled, “World insurance in 2016: the China growth engine steams ahead.”
Indeed, China experienced strong growth in both the life and non-life sectors in 2016 with US$466 billion in total premiums. China has risen from the 16th largest market globally in 2000 to its current position as number three, which it has held since 2015, the report confirmed.
While China is nipping at the heels of Japan, the second largest market with premiums of US$471 billion, the US market is still the largest insurance market with US$1.35 trillion in premiums.
On the non-life side, global insurance premiums grew by 3.7 percent in 2016, down from 4.2 percent in 2015, but more than the 10-year average growth rate of 2.0 percent, said the Swiss Re report, once again attributing the weaker growth figure to the performance in advanced markets.
Global non-life premium volumes totaled US$2.115 trillion in 2016.
“Emerging markets’ non-life premium growth was sturdy again, up 9.6 percent in 2016, which was above the 10-year average of 8.3 percent,” the report said. “China was the growth engine with 20 percent, but excluding China, emerging market premiums overall increased by just 1.7 percent.”
During 2016 global life premiums totaled US$2.617 trillion in 2016, up 2.5 percent in real terms, compared to 4.4 percent in 2015, said the report, noting that the 2016 growth figure was above the 10-year average of 1.1 percent.
Life premiums in emerging regions remained the main source of global growth, with premiums up by 17 percent, more than twice the 10-year average of 8.4 percent, primarily driven by China, said Swiss Re.
Emerging markets will likely fuel life premium growth in coming years, mainly from China and India, the report predicted.
“The life sector in China is growing very rapidly,” said Kurt Karl, chief economist at Swiss Re, in a prepared statement. “Sales of traditional life products were very strong in 2016, benefiting from further liberalization of interest rates and government efforts to encourage growth of protection products.”
Profitability in both the life and non-life sectors weakened amid low interest rates and strong competition during 2016, the report affirmed.
The overall profitability of property & casualty insurance in a sample of eight key markets declined again in 2016, with sector return on equity dropping to 6.2 percent from 8.1 percent in 2015, according to Swiss Re.
Further, the overall combined ratio for the eight markets deteriorated from 97.8 percent in 2015 to 99.9 percent in 2016, the report said, noting that trends were mixed across regions.
Swiss Re cited the example of the U.S. non-life market, which saw its first non-life underwriting loss in four years, driven by higher catastrophe claims and lower releases from prior-year loss reserves.
On the other hand, Western Europe’s underwriting profitability was little changed with a combined ratio of around 95 percent, while a slight improvement in the UK was offset by worsening profits in Germany, France and Italy, the report confirmed.
In Japan, overall underwriting results deteriorated after claims from the Kumamoto earthquake as well as higher losses in motor, it continued. At the same time, profitability improved in Australia as a result of lower property claims and large reserve releases in long-tail business.
“Despite pressure on profits, however, both the life and non-life insurance sectors remain well capitalized,” Swiss Re continued.
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Swiss Re Institute’s sigma report can be downloaded from Swiss Re’s website in several languages where PDF versions also can be found.