Global life premium growth is expected to improve in the coming years, mainly driven by the emerging markets, in particular China and India, forecasts Swiss Re Institute in its sigma report released yesterday, titled "World insurance in 2016: the China growth engine steams ahead".
The life market in advanced markets should also grow, but only moderately. Growth will likely be highest in advanced Asia, says the report, and North America is expected to outperform Western Europe.
Growth in the global nonlife market is expected to remain moderate, with stronger activity in the advanced economies lending support. Premium growth is expected to improve in advanced Asia and North America, but remain flat in Western Europe and Oceania. Emerging markets are likely to grow robustly but at a slower pace than in the recent past. There will be healthy growth in China and to a lesser extent in India.
Managing legacy savings business with embedded guarantees will remain a major challenge for life insurers' profitability in the coming years. Historically low interest rates are likely to persist and limit the ability to offer attractive savings products. Life insurers gloablly will continue to reorientate their business models and shift their focus from traditional savings to life protection products, but it will be a while before these measures have an impact. The profitability of nonlife insurers is expected to remain pressured given still-low investment returns, and as underwriting results are impacted by the continued soft market conditions and dwindling reserve releases.
Life premiums in emerging Asia are expected to increase by double digits this year and next. The rise of digital distribution channels, the expansion of bancassurance and the promotion of protection products will be key growth drivers.
In China, premium growth is expected to slow from the exceptionally high level in 2016 due to increased regulatory pressure to curtail the sales of short-term wealth management-type products. Aggregate profitability will continue to be affected by low interest rates, as most central banks in the region maintain loose monetary policy to support economic growth.
Nonlife premium growth in emerging Asia is expected to remain stable in 2017. Fiscal expansion and solid foreign direct investment should boost infrastructure and construction-related lines in Southeast Asia. Initiatives by the Chinese and Indian governments to develop speciality lines will support agriculture, liability and credit insurance, and rising household disposable income will likely boost demand for personal lines.
The outlook for advanced Asia life premium growth remains challenging, as low interest rates are dampening insurers’ ability to offer attractive returns to consumers. In Hong Kong, the recent tightening of capital controls by China could reduce the number of Chinese visitors acquiring life insurance in the territory, says the sigma report.
The outlook for investment income remains uninspiring given that most central banks in advanced Asia are expected to maintain interest rates at current lows, despite rising US rates.
Forward-looking indicators point to improving economic growth in the advanced Asian markets, which should support non-life premiums. However, pressures on rates are likely to remain and, at the same time, insurers have to deal with impending regulatory changes. These include implementation of, or revisions to, risk-based capital regimes in Hong Kong and Singapore, and a reduction in compulsory automobile liability insurance premium rates in Japan (by an average of 6.9% from 1 April 2017). Overall, the pace of premium growth in 2017 is expected to be much the same as in 2016.
Advanced Asia includes Singapore, Japan, Hong Kong, South Korea and Taiwan.