The global economy is expected to strengthen moderately next year, supporting insurance premium growth in most regions, according to Swiss Re's latest publication, Global Insurance Review 2015 and Outlook 2016/17.
The firm said that demand for non-life insurance is expected to grow in 2016 and 2017, led by an 8-9 percent annual gain in the emerging markets. However, it said the life insurance sector faces challenges, in particular from ongoing low interest rates.
According to the report, the US and the UK economies are currently growing by close to 2.5 percent, however real gross domestic product (GDP) growth in Japan and the Euro area are a more subdued at 0.7 percent and 1.5 percent, respectively.
The four economies are all expected to see slightly better growth in 2016. Emerging markets will grow by about 5 percent in each of the next two years, according to Swiss Re, an improvement on the current 4 percent pace.
The reinsurance firm says that the global economy faces three main headwinds: slower growth in China, lower commodity prices and an imminent rate increase by the Federal Reserve.
“The headwinds pose a risk to the baseline forecast, but are unlikely to derail the improving growth momentum,” said Swiss Re.
The firm said that with the overall improved outlook and expected monetary policy tightening in the US and UK, government bond yields (especially in the US and the UK) will likely rise.
"Global economic growth is a good sign for insurers," said Kurt Karl, chief economist, Swiss Re.
"This is especially so in the emerging markets, where urbanisation and growing wealth will support overall sector growth. 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."
Swiss Re claims that the emerging markets will be the main drivers in non-life, with premiums up 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 emerging Asia, according to the report, at 12 percent annually. It also stated that a recovery is expected in Central and Eastern Europe after contraction in 2014 and 2015.
Swiss Re claims that 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.
“The non-life reinsurance sector underwriting result has likewise been strong so far this year, also based on low natural catastrophe losses,” said the firm.
“However, with falling prices, profit margins have eroded over the past two years. Property catastrophe reinsurance rates are currently close to bottoming out and the rate softening in most lines is expected to moderate or come to a standstill.”
Swiss Re also claimed that in property and casualty, significant differences in pricing developments by market and line of business are expected.
Swiss Re, Kurt Karl, Europe