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Advanced markets in Asia see steady expansion in life and non-life - Swiss Re

Source: Asia Insurance Review | Aug 2016

Life insurance premium in advanced Asia (Japan, Hong Kong, Singapore, South Korea and Taiwan) grew 4.2% in 2015, after a 3.3% gain in the previous year while non-life premium growth was stronger in 2015 than in 2014 (+4.1% and +3.4%, respectively), said Swiss Re in comments on the market outlook in its “World Insurance in 2015” report.
   However, going forward, life insurance business growth in advanced Asian markets is seen as uncertain due to the low interest-rate environment while non-life growth will be challenged by the slow economic climate.
Life insurance
The improvement in the life insurance premium in 2015 for advanced Asia was driven by acceleration in Japan, with premium growth up 2.8% from 1.3% in 2014. This more than compensated for a slowdown in Singapore to a still solid 9.5%. (2014: 14%) 
   The slowdown was mostly due to slower sales of single premium linked policies, but the market continued to benefit from increased transparency and the lower distribution costs resulting from the Direct Purchase Insurance initiative.
   Meanwhile, sales remained robust and stable in Hong Kong, South Korea and Taiwan. In Japan, improved sales of traditional individual life products helped offset sluggish demand for annuity products. Hong Kong has continued to benefit from new business sales to visitors from mainland China, which accounted for 24% of total new premiums from individual life savings business in 2015. In Taiwan, there was a recovery in individual annuity sales and in South Korea, robust sales of protection products underpinned overall premium growth.
   Prolonged low interest rates has put pressure on life insurers’ investment returns and profitability. To counter low returns at home, Japanese life insurers have increased holding of foreign securities. At the same time, insurers have sought to lower operational expenses, particularly in Japan, South Korea and Taiwan where insurers face deepening negative interest rate spreads (market interest rates are lower than the guaranteed interest rates of policies).
   The near-term growth outlook for life insurance in advanced Asia remains uncertain, as low interest rates continue to threaten insurers’ ability to offer attractive returns. This is the case in South Korea and Taiwan, and even more so in Japan where the central bank has adopted a negative interest rate regime. In Hong Kong, tightening rules on overseas payments through credit cards, and regulator concerns in mainland China about currency and claims risks of mainland Chinese purchasing insurance in Hong Kong, could constrain insurance sales to China visitors.
Non-life insurance
Non-life premium growth in advanced Asia was stronger in 2015 than in 2014 (+4.1% and +3.4%, respectively). In Japan, premiums rose 3.1% (2014: 3.9%) from strong demand for fire cover ahead of rate hikes and product revisions in October 2015. At the same time, rate increases pushed motor premiums higher while personal accident business fell.
   Stronger growth in A&H underpinned a recovery in Hong Kong, while in Singapore growth derived support from robust expansion in the health, fire and marine lines. Premium growth in Taiwan was fairly broad-based across business lines while Korea’s non-life sector benefitted from rate hikes in the motor and health segments.
   Profitability is estimated to have deteriorated in the advanced Asian markets. Higher loss ratios were reported in most markets with the exception of Singapore, but there, profitability was undermined by higher expenses and low investment returns. In Japan, profitability was affected by higher losses from natural catastrophes in 2015, including the Typhoons Goni and Etau. Combined insured losses from the two events are estimated at US$1.5 billion.
   Weakening economic growth will remain a key challenge for the non-life sector in advanced Asia. The boost from motor premium rates will begin to fade in 2016, while motor vehicles sales likely remain weak. On the other hand, growth is expected to remain strong in A&H, partly due to increasing awareness and also product re-pricing, for example, in South Korea.
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