‘Emerging markets are growth engines for industry ‘
According to the Swiss Re-review, demand for non-life insurance is expected to grow, led by an eight percent to nine percent annual gain in emerging markets during 2016 and 2017.
The life insurance sector faces challenges, in particular from ongoing low-interest rates. Nevertheless, Swiss Re said, global life premiums are forecast to rise by about four percent in each of the next two years – once again led by the emerging markets.
“Global economic growth is a good sign for insurers. This is especially so in the emerging markets, where urbanization and growing wealth will support overall sector growth,” said Kurt Karl, Swiss Re’s chief economist.
“We’ve said for some years now that emerging markets are the growth engines for the insurance industry – and this is expected to continue for at least several years more,” he added.
The U.S. and U.K. economies are currently growing by about 2.5 percent, while the growth of real gross domestic product in Japan and the euro area are a more subdued 0.7 percent and 1.5 percent, respectively, the Swiss Re-review said, noting that these four economies are all expected to see slightly better growth in 2016.
Powering ahead are the emerging markets, which are expected to grow by about five percent in each of the next two years, an improvement on the current 4 percent pace, according to the report.
The three principal headwinds buffeting the global economy are slower growth in China, lower commodity prices and a Federal Reserve rate increase, the review went on to say.
While these headwinds pose a risk to the baseline forecast, they are “unlikely to derail the improving growth momentum,” Swiss Re said.
The improved outlook and expected monetary policy tightening in the U.S. and U.K., will likely raise government bond yields, the report continued.
The report predicted that global primary non-life premium growth will improve to three percent in 2016 and 3.2 percent in 2017, from 2.5 percent this year, said Swiss Re, noting that main drivers of growth will be in the emerging markets.
Indeed, emerging markets premiums will increase an estimated 7.9 percent and 8.7 percent in 2016 and 2017, respectively, after a 5.6 percent gain in 2015.
Premium growth is expected to be strongest in Asian emerging markets (12 percent annually), with a recovery expected in Central and Eastern Europe after a contraction in 2014 and 2015.
On the other hand, growth in advanced markets is expected to slow slightly as a result of softening prices and only modest improvement in economic growth, the report continued.
“Despite the challenging pricing environment, underwriting profits in primary non-life insurance have been sustained by low natural catastrophe losses and a continuation of reserve releases from past years,” Swiss Re said.