Emerging markets will drive premium growth says Swiss Re
Global economic growth will continue to strengthen in 2014, which will support on-going premium growth in the non-life primary market, particularly in emerging markets, with reinsurance premiums following suit. Those are the findings of Swiss Re’s global insurance review 2013 and outlook 2014/15.
According to the reinsurer, life reinsurance premiums are expected to continue to decline in advanced markets, while rising in emerging markets, and alternative funds are expected to maintain a focus on established nat cat markets.
The review found that the US economy is still growing and the euro area, while not expected to accelerate rapidly, has returned to growth. The weaker yen has boosted growth and increased inflation in Japan.
Real (after-inflation) premium growth in the primary market is projected to be around 2 percent in the advanced economies, and close to 8 percent in the emerging markets in 2014. Premium growth in the reinsurance sector will follow suit, but will be a little stronger. The low interest rate environment has weighed on investment returns in the primary life market. Reinsurers have been similarly impacted, with sector profitability estimated to be close to 10 percent in 2013, down from 14 percentage in 2012.
"A return to economic growth in the mature markets is a good sign for insurance and we see a positive outlook for the next two years,” said Kurt Karl, Swiss Re's chief economist. “Emerging markets, especially in Africa and Asia, will definitely provide some of the more spectacular growth figures in non-life business as cities grow and people look for financial protection for their property."
The global life sector recovery is set to continue, but reinsurance premiums in advanced markets are expected to shrink, according to Swiss Re.
"The figures for emerging markets this year have been robust and this is expected to continue. In Latin America, we saw 18 percent growth in 2012 and in 2013 we are looking at 10 percent growth, which is still very good,” said Karl.
The alternative capital, which is now in abundance, is expected to continue to focus mostly on the US reinsurance business, where well-modelled risks, low entry barriers and relatively high margins characterise the market.
"Investors need well-modelled and transparent risks to invest in," says Martin Bisping, head of non-life risk transfer at Swiss Re. "We can expect funds to focus on established nat cat markets where the conditions are well understood – at the moment this means the US is the most attractive market."
