Stagnating interest rates to hit insurance growth across Europe
“A healthy economy is conducive to a healthy insurance industry,” according to Gonzalo de Cadenas Santiago, director of Macroeconomics and Financial Analysis at Mapfre. Economic deceleration is prevalent in the UK and Eurozone, prompting many authorities to adopt accommodative monetary policies to boost growth, causing interest rates to stabilise at relatively low levels.
According to Mapfre’s economic research department, these low interest rates coupled with economic deceleration and uncertainty around Brexit will leave insurance growth in the Eurozone and the UK struggling to keep pace with the rise in gross domestic product.
Life insurance is particularly affected by interest rates, Santiago said. But the current climate in the Eurozone is having a negative bearing on both the development of the non-life and life protection business in the UK, which is expected to decelerate further next year. Mapfre estimates that insurance premiums in the UK’s non-life business will grow at around 1.3 percent in 2020, meaning a decline in real terms of -0.3 percent.
When pitted against insurance growth in the Eurozone and the UK, or lack of, the Latin American market has become increasingly attractive to investors. “Latin America has just three percent of world insurance premiums compared to 32 percent of premiums in Asia”, Santiago explained. With low penetration rates, large populations and higher interest levels, the region’s insurance industry has huge potential.
The average growth of the insurance industry in Latin America is predicted to be 10.5 percent with Argentina set to see an increase of 17.2 percent, Ecuador 11.2 percent with Peru and Uruguay both expected to see growth of 10.4 percent.
Santiago added that despite the growth in the region, income distribution isn’t evenly spread. But as the middle class expands, demand for lifestyle products such as unemployment insurance will grow. “On the supply side, Latin America faces some barriers related to regulation and interactions with supervising authorities. These interactions and analysis of technical information delay innovation in the insurance sector,” Satiago concluded.
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