New Swiss Re sigma study “World insurance in 2010” reveals growth in global premium volume and capital

• Global premium volume rose solidly in 2010, driven by economic growth, rebound in capital and solvency
• Emerging countries continued to gain in importance - China became the 6^th largest insurance market
• Investment income suffered from low interest rates

According to Swiss Re’s latest “World insurance in 2010” sigma study, world insurance premium volume increased 2.7% on an inflation-adjusted basis. Life premiums rose by 3.2%, non-life by 2.1%. Premium growth in emerging markets accelerated. The industry’s capital and solvency improved, while low interest rates weighed on investment income.

The insurance industry is back to growth, as shown by Swiss Re's annual assessment of global insurance markets for 2010. Premium volume grew in three quarters of the 78 markets covered in the publication. Growth was particularly strong in emerging markets. At the same time capital and solvency in the insurance industry improved robustly but low interest rates still had a negative impact on profitability.

Global life premiums rose by 3.2%

Life insurance premiums globally grew 3.2% to USD 2 520 billion in 2010. Growth was especially strong in Asian emerging markets and robust in some large European markets. In the US and the UK, premiums declined, though at a more modest pace than 2009. While low interest rates negatively impacted life insurers’ profitability, they contributed to a strong improvement in the life industry’s accounting capital position by increasing the value of life insurers' bond portfolios.

Daniel Staib, one of the authors of the new sigma study, says: “The dominating picture is that the industry is on the way back to the long-term growth trend. In fact, in some continental European countries, growth in the past year could be said to be very strong because sales of single premium products with comparatively attractive guarantees increased strongly."

In emerging markets, life premiums rose by 13%. South & East Asia was the region that had the strongest growth, at 18%, led by China, with strong demand for both traditional and investment-linked products. Latin America and the Caribbean were not far behind, at 12%, led by Brazil.

Non-life premium increased by 2.1% in 2010

Global non-life insurance premiums rose by 2.1% in 2010. In emerging and newly industrialised Asian countries, the strong economic rebound increased demand for insurance cover. Premium volume rose in Europe and the US as well. Industry capital continued its positive development and rose to a record high in 2010.

Underwriting results deteriorated by most in the US and turned negative in large European markets, in the latter case due to dismal motor results. In the eight largest markets, premium income did not fully cover claims payments and other costs for the second year in a row. “The average combined ratio of these leading markets worsened to 103%, compared to 101% in 2009. Given recent catastrophe loss events, it is clear that global underwriting results will deteriorate further in 2011. This indicates that prices are inadequate. In some markets, such as Italy and the UK, rates began to mount, most notably in the personal motor business, signaling that the underwriting cycle is at long last beginning to turn,” says Staib.

Outlook: Strong focus on growth in 2011

Despite lingering uncertainty, the economic recovery should continue and bolster premium growth in the life and non-life sectors globally in 2011. However, investment income in both life and non-life sectors will remain low given that interest rates will only rise slowly, at best.

"In terms of the mature markets, growth in life insurance is expected to turn positive in the US, while in Western Europe, premium growth could slow down slightly, as rising interest rates will make life policies with interest rate guarantees less attractive,” says Staib. Over the longer term, the fact that our ageing societies increasingly need provisions for old age continues to be positive for life insurers. In non-life, the trend is towards higher premium growth in 2011. This trend will strengthen as premium rates begin to get adjusted upwards.

The global market share of emerging countries is expected to continue to increase strongly from today’s 14% over the next ten years. China is likely to become the second largest insurance market within a decade (in 2010 it is the sixth largest).

The main risks to the outlook are an escalation of the euro sovereign debt crisis or a major oil shortage caused by turmoil in major oil producing countries.

The study is the first public assessment of the performance of global insurance markets in 2010. The 78 markets, where data or estimates for 2010 are available, account for 98% of global premium volume. Overall, the report is based on 147 insurance markets.

source-swiss-re website.

Swiss Re’s new sigma study reveals that natural catastrophes and man-made disasters caused economic losses of USD 218 billion and cost insurers USD 43 billion

 According to Swiss Re’s latest sigma study, worldwide economic losses from natural catastrophes and man-made disasters were USD 218 billion in 2010, more than triple the 2009 figure of USD 68 billion. The cost to the global insurance industry was more than USD 43 billion, an increase of more than 60% over the previous year. Approximately 304 000 people died in these events, the highest number since 1976.

In 2010, severe catastrophes claimed significantly more lives than the previous year: around 304 000 were killed, compared to 15 000 in 2009. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222 000 lives. Nearly 56 000 people died during the summer heatwave in Russia. The summer floods in China and Pakistan also resulted in over 6 200 deaths.

Natural catastrophes cost the global insurance industry roughly USD 40 billion in 2010, while man-made disasters triggered additional claims of more than USD 3 billion. By way of comparison, overall insured losses totalled USD 27 billion in 2009.

High earthquake losses

Earthquake losses accounted for almost one third of all catastrophe losses in 2010. The February 2010 earthquake in Chile and the September earthquake in New Zealand were the two costliest events in 2010, and led to insured losses estimated at USD 8 billion and USD 4.4 billion respectively. Overall natural catastrophe claims in 2010 were in line with the 10-year average due to unusually modest US hurricane losses and in spite of notably high earthquake losses.

Incidentally, earthquake losses for 2011 will also be above average as the total insured claims for the February 22 earthquake in Christ-church, New Zealand, are estimated to be between USD 6 billion and USD 12 billion. The massive Tohoku earthquake that struck Sendai, Japan on March 11 is also expected to trigger significant insured losses.

Ten events each triggered insured losses of at least USD 1 billion

In 2010, ten events triggered insured losses of USD 1 billion or more. The two biggest insured losses were caused by earthquakes – the February earthquake in Chile (USD 8 billion) and the September earthquake in Christchurch, New Zealand (USD 4.4 billion). The third costliest event was winter storm Xynthia in Western Europe, which led to insured losses of USD 2.8 billion. Three storms in the US and two storms in Australia also generated losses of over USD 1 billion. Property claims from the BP Deepwater Horizon explosion in the Gulf of Mexico are estimated at USD 1 billion. Given the complexity of the claims, the latter figure is still subject to substantial uncertainty. The overall insurance loss is higher, as liability losses are not included in the sigma numbers.

Natural catastrophes and man-made disasters cost society

In 2010, worldwide economic losses from natural and man-made catastrophes were estimated at USD 218 billion. This represents a sharp increase over 2009, when economic losses totalled USD 68 billion. Asia was the hardest-hit region with total damages of approximately USD 75 billion. Pakistan and several large regions in China experienced extraordinary rainfall during the summer, resulting in devastating floods.

Thomas Hess, Chief Economist of Swiss Re, comments: ”2010 was not only characterised by severe earthquakes that ranked among the deadliest, costliest and most powerful in history, but also by a series of extreme weather events, such as major floods. Some of these flood events sadly affected countries with poor emergency preparedness and underdeveloped insurance markets.”

 

Source-Swiss re.

Swiss Re: Global insurance industry led by double-digit growth in emerging Asia

Swiss Re’s economist predicts sustained strong growth in Asia's insurance industry in 2011, with emerging markets continuing to outpace mature markets. Life and non-life insurance premiums in emerging Asia grew strongly by 16.8% and 17.3% respectively, in real terms in 2010, with significant contribution in particular from China. Such strong momentum is expected to continue in 2011; but there are emerging risks to watch out for.

Emerging Asia’s GDP expected to grow 8% in 2011

The world economy is expected to continue expanding steadily by an annual average of 3.5% in 2011. Emerging Asia (China, India, Indonesia, Malaysia, Philippines, Thailand and Vietnam) is forecast to grow at 8% in 2011. China and India are the key engines for the economic growth, which are projected to maintain an annual growth rate of 8-9% in the coming two years. By 2020, China and India are expected to be the second and fifth largest economies in the world.

“The Asia economic outlook remains positive, driven by robust domestic consumption and investment demand, sustained capital inflows into Asia, rising intra-regional trade and investment, and supportive government fiscal and monetary policies, ” said Clarence Wong, Swiss Re Chief Economist Asia.

“However, the rosy prospect is clouded by emerging risks, such as rising inflation, brewing asset bubbles, potentially abrupt reversal of capital flows, and increasing risks of currency wars and trade protectionism,” added Clarence Wong.

Strong growth in emerging Asian insurance premiums

The global insurance industry has recovered from the financial crisis and premium growth is expected to accelerate in 2011.

“In Asia, life insurance and personal non-life business lines will benefit from the region’s vibrant economic performance, rising incomes, urbanisation and demographic change caused by aging populations,” said Clarence Wong.

Life insurance premium growth continues in Asia

In emerging Asia, the real growth rate of life insurance premiums accelerated to an estimated 16.8% in 2010 from 10.7% in 2009 and is expected to grow by around 10.3% in 2011. China’s life insurance premium grew remarkably by 24.4% in 2010 (after adjustment for inflation), while Indonesia, Malaysia, Thailand and Vietnam also recorded growth in excess of 10%.

“Emerging Asia outpaces all other emerging regions. This is most obvious in life insurance while emerging Asia can sustain annual growth of 8-10% over the next 10 years. Alongside robust demand for investment-linked insurance products, the potential of protection-type insurance in Asia is also significant,” said Clarence Wong.

Rising disposable household income, low deposit interest rate, and improving investment sentiment will drive demand for investment-linked products. Health insurance has also seen tangible increases in demand over the past years.

However, current low interest rates may impact insurers' investment yields. Those insurers with embedded guarantees in their products may suffer further losses.

Life reinsurers continued to benefit from strong growth in the primary insurance markets. There are also rising demands for reinsurance solutions aimed to provide capital relief and to support M&A transactions in the primary sector.

China’s non-life insurance premium growth outpaces the world

Emerging Asia is also the growth leader in non-life insurance, where premiums increased by 17.3% in real terms in 2010. It is forecast to grow at 12.5% in 2011. Growth is particularly strong in China (21.5% in 2010 and 14.1% in 2011) and Vietnam (13% in 2010 and 14.2% in 2011).

Motor business will benefit from further increases in car ownership. Higher incomes will fuel demand for property insurance. Demand for commercial lines insurance will continue to increase due to government-sponsored infrastructure projects and recovering trade-related lines of business.

“Non-life insurers tend to exhibit a pattern of improved premium growth but weak profitability due to pressure on pricing, low investment returns, and rising claims,” added Clarence Wong.

For the property and casualty sector, the 1 January renewals in Asia indicated that the overall reinsurance capacity remained abundant, suppressing reinsurance pricing. Nonetheless, price corrections were seen in areas where there had been losses, such as the natural catastrophe area following the Australian hailstorms and New Zealand earthquake.

Challenges ahead

Although interest rate hikes may help improve insurers’ investment returns, these will put pressure on available capital if assets are marked-to-market. Underwriting will need to be disciplined to maintain profitability since inflation is rising in Asia that could impact insurers’ claim costs.

“We expect risk-based capital (RBC) solvency regimes to be more common in Asia alongside firmer enforcement of RBC standards. Some regulators are also increasingly making use of scenarios and stress tests to compliment RBC regimes. This will add pressure to insurers’ balance sheets and increase their need for capital. Insurers should focus on underwriting and risk management, and ensure that premium rates are sufficient to cover their increasing risk exposures,” said Clarence Wong.

http://www.swissre.com/media/media_information/Swiss_Re_Global_insurance_industry_led_by_double-digit_growth_in_emerging_Asia.html