21 May 2014 Insurance

Emerging economies could stunt insurance growth

Economic recovery in many developed countries is expected to generate growth but a cooling of emerging countries’ economies could counteract this.

Munich Re has reported that growth prospects in China are muted, Russia's economy is suffering from the Ukraine crisis, and countries like Brazil and India are also struggling with comparatively weaker economic dynamics.

In recent years, growth in emerging countries has served as the decisive growth driver of global premium volumes, particularly in property-casualty insurance, it is the industrial countries whose contribution to growth is currently increasing, said the report.

Although in many emerging countries growth rates will remain very high in the medium to long term, decelerating dynamics in these countries will impact the high level of growth in the short term.

Munich Re's anticipates real overall growth in primary insurance premiums, adjusted for inflationary and currency effects, of 2.8 percent this year and 3.2 percent in 2015. This corresponds to nominal growth (calculated in euros) of 3.9 percent in 2014 and 4.6 percent in 2015.

“After three years of relatively low growth rates, global premium growth is slowly picking up once again,” said Michael Menhart, chief economist at Munich Re. “Above all, this is due to economic recovery in the industrial nations.”

“In the long term, however, we expect that emerging countries will continue to become more important for the global insurance markets.”

The economists think that emerging countries will have a much greater weight in the insurance market by 2020.

The share of the emerging Asian countries in global premium income is anticipated to increase from 9 percent over the past year to 14 percent in 2020. Munich Re anticipates that the Chinese market, which with premium volume of around €210 billion in 2013 was already the fourth-largest primary insurance market, will more than double by 2020 and will then be the third-largest market worldwide.

Munich Re reported that the reinsurance sector will also profit from the growth in primary insurance markets. Despite the current cyclical price pressures in the property-casualty sector, which are curbing premium growth, by 2020 there should be average growth in reinsurance markets in real terms of slightly above 2 percent per year, nominally around 4 percent p.a. on a euro basis.

Chairman of the board of management, Nikolaus von Bomhard, who is responsible for the economic research unit, said: “Munich Re's business strategy, with its combination of reinsurance and primary insurance under one roof, remains focused on anticipated market developments. This means that as well as operating in our high-volume core markets, we also want to continue to grow in emerging countries, where it has been proven that increased risk transfer via insurance generates substantial economic benefits.”

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