In developed Asia-Pacific, non-life underwriting profitability has improved, according to the Swiss Re Institute's report titled "Global insurance review 2017 and outlook 2018/19".
Non-life insurers´ profitability in Australia has improved in 2017, despite higher nat cat losses. This reflects higher premium rates, reserve releases and higher reinsurance protection for peril claims. In Japan, domestic non-life insurers are estimated to have had stable underwriting profits in 2017, driven mainly by benign Nat CAT losses. Compulsory motor premiums declined in 2017 due to premium rate cuts. In 2018, further rate cuts are expected, given declining accident frequency helped by widespread use of safety technologies such as automatic brakes.
However, global non-life industry profitability has declined in 2017, with return on equity (ROE) down to 3% from 6% in 2016, and well below 10% in 2013 and 2014.
Non-life industry underwriting profitability is under pressure from several factors:
- Softening premium rates: In commercial lines in particular, insurance rates have softened significantly over the past few years. They have declined in all lines of business in all major regions, with the exception of the Pacific region (Australia).
- Deteriorating claims trends: In particular, claims costs have risen notably in casualty lines. The biggest gains have been in US motor, where frequency and severity of claims have been picking up, adding to elevated claims trends. The European motor markets have seen higher claims costs, but to a lesser degree.
- Reserving may soon prove insufficient in key markets like the US. Reserves from the redundant hard-market years are waning and the reserve adequacy of more recent loss years is unclear.
- High Nat CAT losses have added to the negative profitability development of primary insurers in 2017. The biggest loss events this year were the series of devastating hurricanes which hit the Caribbean islands and the US. But also, the number of events which cause insured losses of US$1 billion or more is increasing, another contributing factor to higher insurance claims overall. The three hurricanes – Harvey, Irma, Maria – and earthquakes in Mexico resulted in estimated insured losses of around US$95 billion.
The global economic outlook for 2018 and 2019 is more positive and demand for non-life insurance is expected to increase, says the report. Global non-life premiums are forecast to increase by at least 3% in 2018 and 2019. Emerging markets will be the main driver of growth with premiums forecast to rise by 6% to 7% in real terms in 2018 and 2019.
Real growth in the advanced markets is expected to slow as macro conditions improve only modestly and inflation accelerates. Rates, however, are expected to react to the recent nat cat losses in the US and Latin America, especially in property lines.
Assuming average Nat CAT losses, overall underwriting profitability globally is therefore likely to improve in 2018. Positive rate dynamics and demand for new types of cover will likely support premium growth in the coming years.
In the longer term, growth will likely be further supported by demand for cover for new and evolving risk exposures such as cyber, non-physical business interruption, product recall and reputational risk insurance, especially in mature economies
In 2017, non-life premiums have risen moderately in almost all countries/regions due to stronger economic growth. Global non-life premiums are up an estimated 3% in real terms, after a 2.3% gain in 2016.