Global insurance premium showed solid growth, emerging markets above all

8 years ago - Published in Finance, Fundamental Analysis

Global insurance premiums increased by 3.1% in real terms in 2016,  a fairly solid outcome in an environment of moderate global economic growth, Swiss Re Institute's latest sigma report says.

The main cause of the weaker global premium development were the advanced economies but growth in many emerging markets – excluding China – slowed also.

Global life premium growth fell to 2.5% in 2016 from 4.4% in 2015 as advanced market premiums contracted, while life premiums in the emerging regions together grew by more than double the long-term average.

Emerging markets remained the main source of life global growth, with premiums up 17% year-on-year, more than twice the 10-year average of 8.4%. The fast expansion was primarily driven by China.

"The life sector in China is growing very rapidly," says Kurt Karl, chief economist at Swiss Re. In 2000, China was the 16th largest market globally in terms of total insurance premiums written. By 2016, it was the world's third largest market with USD 466 billion in total premiums, not much smaller than the second largest market, Japan ($471 billion), but still much smaller than the US ($.35 trillion). 

"Sales of traditional life products were very strong in 2016, benefitting from further liberalisation of interest rates and government efforts to encourage growth of protection products."

Economic growth slowed last year to just 2.5%, taken as a global average. The overall outlook for insurance growth remains positive for the sector, the Zurich-based reinsurance group suggested, well above the past 10 years’ average of 2% annually.

“Non-life premium growth is expected to remain moderate, with stronger economic activity in the advanced markets supporting momentum,” Swiss Re noted.

Excluding China, overall emerging market life premium growth was significantly lower at 5.7%, driven by gains in India, Indonesia and Vietnam. In advanced markets, premiums contracted by 0.5% in 2016, extending a 10-year period of stagnation in premium development.

In non-life, global premiums grew by 3.7 percent in 2016, down from the 4.2 percent gain in 2015 but more than the 10-year average of 2.0%. Premium growth in the emerging markets was solid at 9.6%, above the 10-year average of 8.3 percent. However, the emerging market outcome was heavily skewed by China, where non-life premiums were up 20 percent.

A surge in demand for health insurance and sustained but slowing demand in motor insurance underpinned non-life premiums in China. Excluding China, emerging market premiums overall increased by just 1.7 percent. Non-life premium growth in the advanced markets slowed to 2.3 percent in 2016 (2015: 3.3 percent), but that was well above the 10-year average of 1.0 percent. Growth weakened in all major advanced regions (except Oceania) due to lower economic growth and softer rates.

The emerging markets will likely fuel improvement in life premiums in the coming years, with China and India being the main growth drivers. Non-life premium growth is expected to remain moderate, with stronger economic activity in the advanced markets supporting momentum.

Over insurance transactions, there has been a proliferation of direct digital distribution channels in recent years, in some markets. At the same time, the share of traditionally intermediated insurance business remains dominant globally. The digitalisation of insurance distribution is set to continue, but the pace of change will vary across markets.