The insurance industry can look forward to moderate premium growth in 2012, with emerging markets showing strong growth in non-life premiums and a recovery in life insurance premiums. Developed countries should show moderate expansion in non-life premiums. But record low interest rates will remain a challenge for the entire industry.
Those are the findings of the latest study by the Swiss Re Group, the Swiss-based wholesale provider of insurance and reinsurance with U.S. headquarters in Armonk. The study also looked back at how insurance markets worldwide performed in 2011.
Non-life premiums rose 1.9 percent last year because of stronger economies in emerging markets and rate hikes in certain developed countries. Life insurance premiums, meanwhile, fell 2.7 percent, with the sharpest declines in Western Europe, China and India. Growth resumed in the U.S. The worldwide drop in life insurance premiums was mainly caused by a few large markets where premiums tumbled.
“In non-life, we had some growth, strength in the emerging markets, and some small turnaround in pricing in the motor business (car insurance) in Europe,” said Kurt Karl, Swiss Re”™s chief economist. “But we had a decline on the life side because of two big emerging markets, China and India, where there were regulatory changes.”
Those changes, said Karl, meant that banks were more restricted in how they could sell life insurance. “That meant that sales fell pretty dramatically. China is quite large in terms of life insurance premiums in the global economy.”
Those regulations led to an overall decline in emerging market life premiums of 5.1 percent. But other emerging regions such as Latin America and the Middle East showed continued growth, even though very little life insurance is sold in the Middle East compared with other emerging markets.
In the U.S., premiums from new life insurance business recovered, mainly because of strong demand for variable annuities with guarantees.
Meanwhile, in Western Europe, life insurance premiums fell sharply. Those premiums are driven by macroeconomic factors, and Europe”™s economies in general are more macro-driven, said Ming Zhu, analyst at Canaccord Genuity in London.
“As an example,” she said, “in Italy, life was down 20 percent, non-life was down 2 percent, because life is driven by what”™s going on (the economic problems) in Italy. The bank bailouts affect it. In the U.S., though, life has gone up about 3 percent. That”™s because the impact from macroeconomic factors is smaller in the U.S. than in Western Europe.”
Life premiums were down 7 percent last year in Germany but only 3 percent in Great Britain “because they”™re not in the euro zone, there is not the same currency risk,” said Zhu.
Growth in non-life premiums was concentrated in the emerging markets at 8.6 percent, driven by strong economic expansion. But the recession in Europe and the still weak economy in the U.S. cut into demand for insurance there.
“There is uncertainty about the economic outlook,” said Karl. “Savings products have been quite soft in Western Europe and the U.S. Countries like China and India watch developments in the global economy, they saw stress in savings products, and decided the prudent course was to tighten up regulatory requirements,” he said, explaining how conditions in developed markets affect emerging markets.
Growth in non-life premiums also was driven by natural disasters, said Karl. “Last year was quite a heavy catastrophic event year. In Asia we had a turnaround in pricing because of tornadoes, and the earthquake in Japan. The floods in Thailand were important for business continuity insurance, to insure businesses against interruption.”
Karl said that because of the Thai floods, many suppliers to large corporations had their operations washed out and could not deliver key parts to North America and other parts of Asia.”That”™s how tight inventories are these days,” he said. “That”™s especially true in the auto parts industry, which is big in Thailand.”
The Swiss Re study noted that the insurance industry will have to contend with record low interest rates again in 2012. “That”™s a challenge for the industry because part of its profit is from investment income,” said Karl. “Premiums come in, there may be a catastrophe later, but in between you hope to get some investment yield.”
