Emerging markets will drive strong growth in life reinsurance

Growth in the life insurance sector in emerging markets will more than outstrip the stagnating markets in many more developed countries, according to a report from S&P Global Ratings.

The report suggests there remain solid growth prospects in longevity and morbidity lines of business as a result.

It suggests the US mortality business remains flat, and may face declines due to stagnating primary insurance growth and potential regulatory changes on captive principal-based reserving and XXX/AXXX reserving, reserving standards for both term and universal life insurance.

But S&P, on balance, believes growth potential in emerging markets will outpace the possible decline in mature markets over the next few years.

"We expect the global life reinsurance sector will grow by about 3 percent to 5 percent on a gross-premiums-written basis in 2016-2017," said Johannes Bender, analyst at S&P Global Ratings.

"The underpenetrated emerging life insurance markets could grow significantly in the next few years as the economies develop and insurance penetration rates rise."

The ratings agency suggests some risks in emerging market growth arise from increased volatility given that emerging markets have more limited underwriting experience and data.
For example, a rapid increase in longevity and morbidity risk lines could also change companies' risk profiles.

Nevertheless, S&P considers the industry's risk management and underwriting capabilities well advanced, which should help to safeguard the industry from too aggressive growth in new regions and from underestimating new underlying risks.

“We also believe the industry has sound profitability prospects based on our assumption that the growth in emerging markets, longevity, and morbidity on balance will generate similar returns compared to historically in the industry,” said S&P.

“We expect a return on equity (ROE) of just above 10 percent over the next two years, although cash flow patterns might change in view of potentially higher longevity and morbidity shares.”