Global insurance premiums up by 3.1% in 2016; overall growth outlook remains positive, latest sigma study says
Global life premium growth slowed to 2.5% in 2016 from 4.4% in 2015 as advanced market premiums contracted, while life premiums in the emerging regions together grew by more than double the long-term average. In fact, China provided last year 2.4pp of the total 2.5% global growth seen in life insurance.
On the non-life side, global premiums grew 3.7% in 2016, reflecting relatively solid expansion among the emerging countries and another exceptional performance in China. However, the global evolution was more balanced, with North America and Western Europe contributing 1.8 ppt of the 3.7% growth in global sector, and China 1.7 ppt.
The emerging markets will likely fuel improvement in life premiums in the coming years, with China and India being the main growth drivers. Non-life premium growth is expected to remain moderate, with stronger economic activity in the advanced markets supporting momentum.
Total direct insurance premiums written grew by 3.1% in real terms in 2016, down from 4.3% growth in 2015. The increase in 2016 came despite global economic growth - a key driver of insurance demand - of just 2.5%. In nominal USD terms, global insurance premiums were up 2.9%. Nominal growth was lower than real due to currency depreciations, particularly in the UK and some emerging countries.
Due to its rapid growth, China became in 2016 the third largest insurance market in the world, with USD 466 billion in total premiums, not much smaller than the second largest market, Japan (USD 471 billion), but still much smaller than the US (USD 1.35 trillion).
Low interest rates continue to pressure profits
With still low interest rates, profitability in the insurance industry remains under pressure, and return on equity (ROE) declined in both sectors in 2016. In life, moderate premium growth in many markets also dragged on profitability, while the non-life sector was further impacted by lower underwriting results. In the US, the non-life sector experienced its first underwriting loss in four years, driven by higher catastrophe losses and lower releases from prior-year loss reserves. Despite pressure on profits, however, both the life and non-life insurance sectors remain well capitalized.
Premium growth likely to improve, but profits to remain under pressure
Global life premium growth is expected to improve in the coming years, mainly driven by the emerging markets, in particular China and India. Advanced markets should also grow, but only moderately. While North America is expected to outperform Western Europe, growth will likely be highest in advanced Asia. Growth in global non-life is expected to remain moderate, with stronger activity in the advanced economies lending support. Premium growth is expected to improve in North America and advanced Asia, but remain flat in Western Europe and Oceania. Emerging markets are likely to grow robustly but at a slower pace than in the recent past. There will be healthy growth in China and to a lesser extent in India.
Profitability remains under pressure
Managing legacy savings business with embedded guarantees will remain a major challenge for life insurers' profitability in the coming years. Historically-low interest rates are likely to persist and limit the ability to offer attractive savings products to boost new business. Life insurers will continue to re-orientate their business models and shift their focus from traditional savings to life protection products, but it will be a while before these measures have an impact. The profitability of non-life insurers is expected to remain pressured given still-low investment returns, and as underwriting results are impacted by the continued soft market conditions and dwindling reserve releases.
Digital distribution continues to grow; intermediaries are here to stay
This sigma includes a special chapter on developments in digital distribution in insurance. There has been a proliferation of direct digital distribution channels in recent years, in some markets. At the same time, the share of traditionally intermediated insurance business remains dominant globally. The digitalization of insurance distribution is set to continue, but the pace of change will vary across markets. Digital channels will ultimately be used throughout the distribution process, from information gathering to purchase completion to after-sales service. But not all insurance transactions will migrate to online, and intermediaries will continue to play an important role.