Recovery in China’s life market helped Emerging Asia’s life insurance premium growth accelerate by 9.9% in 2014 from 3.3% in 2013, according to Swiss Re’s latest sigma report on world insurance. Emerging Asian markets refer to Asia excluding Hong Kong, Japan, Singapore, South Korea and Taiwan.
The life sector in China grew by 13%, driven by new distribution channels such as internet sales, a recovery in bancassurance and lower surrenders.
Elsewhere in the region, growth for life insurance remains strong in Thailand (+12%), the Philippines (+13%) and Vietnam (+13%). In Indonesia, life insurance premium grew by just 3.1% as sales of investment-linked products began to level off, following years of strong growth. In India, premium growth improved from 2013’s growth rate of –0.2% but remained weak at 1.0%, reflecting sustained weakness in sales of unit-linked products.
Life outlook
The growth outlook for life premiums in Emerging Asia remains favourable. In China, the government targets an increase in (total) insurance penetration to 5% by 2020, up from 3.3% in 2014. In India, the amendment in the insurance law in March this year is expected to stimulate the market and also boost consumer confidence in insurers.
On the other hand, a continued loose monetary policy in the region will put pressure on the competitiveness of life savings products relative to wealth management products offered by banks.
And in China, the insurance regulator recently allowed a raising of the interest rate ceiling on universal life products to 3.5% from 2.5%. This could reignite concerns about negative spreads if insurers start offering more products close to the new ceiling.
Recent interest rate cuts in several countries including China, India, Thailand and Indonesia will put further pressure on insurers’ profits. This could, however, be partly offset by better investment returns from equity investments, especially in China where stocks have performed well in recent months, said Swiss Re.
Non-life insurance
Non-life insurance premiums in Emerging Asia grew by 15% in 2014, slightly higher than the 13% growth achieved in 2013. Again, the strongest growth was in China at 17%, mainly driven by motor, guarantee & credit and agricultural insurance business.
In Southeast Asia, economic headwinds weighed on non-life premiums, with Malaysia, Indonesia and the Philippines posting lower growth. In Thailand, the slowdown in premiums was exacerbated by political instability, with non-life premium growing only marginally (1.1%) rather than the double-digit increases of previous years.
By contrast, premium growth picked up in Vietnam (+7.3%) as the economy stabilised and banking sector reform got underway. Similarly, in an environment of improving business sentiment and accelerating economic growth, premium growth in India improved modestly to 4.8% in 2014 from 2.4% a year earlier.
Non-life outlook
A benign claims environment prevailed in 2014, with no significant natural catastrophes hitting the region, thus supporting profitability of non-life insurers.
Non-life premium growth is expected to remain strong in Emerging Asia in 2015, driven by solid economic performance and favourable government policies.
In China, non-life premiums are expected to benefit from the government’s intent to raise insurance penetration. And the new governments in India and Indonesia are carrying out pro-growth structural reforms, including increased spending on infrastructure, which should boost demand for non-life insurance. A more stable political environment in Thailand should facilitate a swift recovery in non-life insurance premium growth.
On the other hand, Malaysia faces increasing constraints on public infrastructure spending as lower oil prices cut into government revenues. Also, full de-tariffication of motor insurance in 2016 could also erode margins of non-life insurers in Malaysia as competition increases.