Global life insurance premiums in real terms are forecast to rise by around 4% annually over the next two years. The major driver will remain the emerging markets, where stable, robust economic growth; expanding populations; urbanisation; and, a rising middle class underpin the positive outlook, says the Swiss Re Institute's report titled "Global insurance review 2017 and outlook 2018/19".
Life premium growth in the emerging markets is expected to be around 10% in 2018 and 2019. Premiums in the advanced markets are expected to grow by a more modest 1?2% after adjusting for inflation. In developed Asia-Pacific, premiums are forecast to grow by 2?3% in 2018 and 2019.
Global primary life insurance premiums are estimated to have risen by about 3% in 2017 in real terms, up from 2% in 2016. The current year´s growth rate is more than double the compound annual growth rate of 1.3% of the previous five years. Emerging markets, in particular China, account for most of the recent acceleration. In developed Asia-Pacific, life premium income is estimated to have risen modestly in 2017 (+1%), driven by a sharp pick-up in Japan following a decline in 2016, and strong growth in Hong Kong, Singapore and Taiwan. In Hong Kong, individual life policies, especially non-linked whole life and non-linked endowment products, remain popular with mainland China residents.
Life reinsurance market
Global cessions picked up sharply in 2016, but this was due largely to a one-off reinsurance transaction involving a US life insurer. Underlying reinsurance premium growth has remained relatively subdued this year. After adjusting for inflation, worldwide reinsurance premiums are estimated to have grown on average by less than 0.5% during 2015 to 2017. This compares with average real growth of around 2% between 2007 and 2014.
Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has provided fertile ground. In Europe, for example, SII has underpinned interest in reinsurance to boost available capital, reduce required regulatory capital or to economise on reserves.
Growth opportunities through longevity risk transfers
Another area of growth for reinsurers has been longevity risk transfer. The availability of longevity reinsurance has become key to the pricing of annuity transactions, as insurers offering bulk annuity, pension buy-in or buy-out transactions typically look to simultaneously access reinsurance capacity to hedge at least part of the associated longevity risk inherent in these lines. After slowing in 2016, longevity risk transfer transactions – both in the form of reinsurance and swaps – picked up again in the first half of 2017, with the pipeline for the rest of the year reportedly remaining strong.54 In aggregate, transactions amounted to a little over US$11 billion in the first half of this year, nearly double the corresponding figure for 1H16, including continued demand from some pension schemes to carry out repeat buy-in transactions. The swaps market is also progressively opening up for modest-sized transactions, making longevity swaps more accessible to smaller pension schemes.
In real terms, global life reinsurance premiums are forecast to increase by just over 1% in 2018. Premiums in the advanced markets are projected to decline after adjusting for inflation, driven by developments in the US where cession rates continue their long-term down trend and growth in the primary market remains weak. In Western European, where cession rates are usually lower, reinsurance premiums are forecast to grow by about 1%.
The strongest contribution to real growth in the advanced markets will likely come from developed Asia. Bespoke transactions will continue to be an important source of income for life reinsurers as their cedents adjust to new regulatory solvency regimes and various transitional arrangements are phased out. The introduction of the new accounting standard (IFRS 17) could also stimulate demand for reinsurance. This may be in the form of regular reinsurance products to hedge underwriting risks, or tailor-made reinsurance structures that provide targeted asset-liability mismatch cover, both of which can help to reduce volatility in insurers´ financial results.