Forecast of the development of the global insurance market for 2017-2018: 5 key trends in the world

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Global economic growth will be moderate during 2017-2018, supporting continued growth in insurance premiums, says the report of the reinsurance company Swiss Re «Global insurance review and outlook for 2017/2018». (pdf)

The growth of risk insurance premiums in the world will decrease in real terms from 2.4% in 2016 to 2.2% in 2017, but will start to grow again from 2018 (+ 3%).

In the life insurance sector, premiums will grow by 4.8% in 2017 and by 4.2% in 2018. Transition economies, particularly emerging Asia, will be the main drivers of economic growth in insurance premiums.

5 key trends in the global insurance market

1. Moderate global economic growth is expected to support the growth of the insurance sector over the next 2 years.
2. Sustained growth in the global insurance sector in 2017 will be based on increasing demand in emerging insurance markets.
3. There is a decrease in the cost of insurance products in the commercial segment. Demand for cyber insurance is gradually increasing.
4. Global life insurance premiums are expected to grow by 4.8% in real terms in 2017 and 4.2% in 2018.
5. Life insurance premiums in transition economies are set to grow strongly, driven by demand for savings and investment products, particularly in emerging Asia.

Insurance outlook for developed markets

Among the major economies, the US economy is forecast to grow by just over 2%, adjusted for inflation (in real terms), each year over the next two years.

Growth in the Eurozone and the UK is forecast to be around 1% and 1.5% respectively, while growth in Japan is expected to be less. than 1%. China's economic growth is expected to be about 6.5%.

Dynamics of real GDP growth in the world, 2014-2018

Monetary policy will remain accommodative over the next two years, even in the US, a gradual increase in rates is expected. Other central banks are expected to keep their interest rates unchanged.

With the Federal Reserve raising rates, the yield on 10-year US government bonds is likely to rise, pushing yields in Europe up slightly.

- "The insurance sector is facing headwinds, moderate economic growth and still ample supply in the markets, creating challenging pricing conditions", says Kurt Karl, chief economist at Swiss Re. - "However, premiums continue to rise in both developed and emerging markets in line with economic activity. There is also an increase in the level of insurance penetration, especially in markets with economies in transition.

Dynamics of the risk insurance market in 2014-2018,%

Forecast of the insurance industry in emerging markets

Premiums for risk insurance in emerging markets will grow from the estimated 5.3% in 2016 to 5.7% in 2017 and 6.7% in 2018. Improving commodity prices and stronger economic activity will stimulate increased demand in the insurance sector from developing regions.

Developing Asia is likely to show the strongest growth in insurance premiums - by almost 8% in 2017 and by 9% in 2018. An additional factor will be the investment opportunities provided by the «One Belt One Road» program. in China (the “One Belt, One Road” program), which is expected to increase demand for commercial insurance.

Dynamics of the risk insurance market by region in 2014-2018,%

Risk insurance rates in the world will continue to decline in 2017-2018, especially in commercial lines of business. However, unlike many other commercial lines of insurance, cyber insurance rates continue to strengthen, however, growth is at a slower pace and may level off in the near future.

Increasing awareness of the risks associated with cyber attacks and data vulnerabilities is a stimulating factor for increasing demand for insurance of relevant risks and presents significant growth opportunities for insurance types other than life insurance.

Risk insurance has maintained its profitability due to low losses from natural catastrophes and the release of insurance reserves. Assuming average natural catastrophe losses and a reduction in reserves, return on equity (ROE) is forecast to decline from 8% in 2015 to around 6% in 2016-2018.

Reinsurance industry outlook

In reinsurance by risk type, global premium growth is expected to be 2.7% in 2017 and 2.9% in 2018, driven by increased cession from transition markets.

Reinsurance industry dynamics in 2014-2018

In the life reinsurance sector, global premium growth will be about 1.5% in 2016 and 1% in 2017-2018, primarily due to the lack of growth in countries with developed economies, where the bulk of cessions are formed. Reinsurance premium growth in emerging markets is forecast at 8% or higher.

Dynamics of combined loss ratio in the reinsurance industry, 2011-2016

Life insurance sector development forecast

It is expected that in the life insurance sector, premium growth will be significantly higher than in risk insurance - life insurance premiums will grow by 5.4%, 4.8% and 4.2% in 2016, 2017 and 2018 respectively.

Life insurance market dynamics in 2014-2018,%

Premiums in developed markets will grow by 2.1% in 2017 and 2018, but the main driving force will again be emerging markets, where stabilizing economic growth, population growth, urbanization and a growing middle class will support the positive outlook.

Life insurance premiums in transition economies will grow by 14.9% in 2017 and 10.9% in 2018, supported by steady growth in savings products, especially in emerging Asia.

Life and health insurance market dynamics by region in 2014-2018,%

China will make a significant contribution, given that the Chinese government has aimed to increase the level of insurance penetration from 3% in 2014 to 5% in 2020.

The ongoing situation with low interest rates continues to create problems for life insurers. Return on equity (ROE) for the life sector declined from 13% at the beginning of 2015 to 10% in 2016 due to weakening investment income and increasing competition and lower rates.

Life insurers are adjusting their products and portfolios to improve profitability, but this will take time.

Source: Forinsurer