MUNICH Re: Global insurance industry set to grow more strongly by 2018
Better economic prospects in the USA and in many emerging markets will offset negative factors such as declining growth in the Chinese market. In the longer term, the emerging markets of Asia will have the greatest growth potential, and their share of primary insurance premium is expected to be on a par with that of Western Europe in the next few years.
Overall, the international primary insurance sector will grow by 4.5% p.a. on average (3.0% in real terms, i.e. adjusted for inflation) in 2017 and 2018. Whilst premium income is likely to grow only nominally this year, slightly higher real growth of 3.0% is expected for 2018. Premiums in the insurance sector are therefore likely to evolve in line with the global economy, which should show real growth of 2.9% in 2017 and 3.1% in 2018. Projected premium growth will thus be slightly higher than that of 2016, and significantly exceed the average growth rate of almost 2% for the past ten years.
Michael MENHART, Chief Economist at Munich Re: "The economies of many emerging markets, such as Brazil, but even Russia, are experiencing a significant recovery. This is leading to increased growth in property-casualty insurance. In most of the industrialised world - in the eurozone, the USA, and Japan - demand has been bolstered by a solid economic environment. We project that life insurance there will see only marginal growth owing to the low-interest-rate environment. By contrast, demand in the emerging markets will continue to rise appreciably. Growth prospects for insurers are therefore looking a little brighter worldwide."
Somewhat weaker expansion in property-casualty insurance
In property-casualty business, premium volume will grow by an average of 4.0% (almost 2.5% in real terms) this year and next. Projected inflation-adjusted growth will thus be roughly half a percentage point below global economic growth. The emerging markets of Asia, and increasingly also the MENA (Middle East and North Africa) region, are likely to exhibit the strongest growth rates. The established markets of Europe and North Africa will naturally see a much lower rate of expansion.
There are many different reasons for the weaker pace of growth in property-casualty insurance. The insurance industry is now beginning to respond to mounting pressure in a number of industrialised countries. Companies have been consistently developing their business models; new products, sales channels, and coverage concepts have been cultivated for new risks such as cyber attacks; and IT systems have been modernised. As a result, new business opportunities are gradually opening up in these markets.
Stronger growth in life insurance
In life insurance, premium growth, which is driven by growth markets in Asia and Latin America, is expected to increase by over 4.5% on average (a good 3.0% in real terms) - somewhat more than economic growth. In the Asian emerging markets, growth will weaken following last year's extraordinary surge in premium volume in China, but it will still be significantly above 10% in real terms. In Latin America, premiums in life insurance are likely to grow by almost 8.5% (over 6.5% in real terms) this year and next.
Prospects in the industrialised countries continue to be clouded by persistently low interest rates. Premium growth here is likely to fall short of economic growth. However, strong premium expansion in the emerging markets will almost fully compensate for the moderate development in the industrialised countries.
Long-term outlook: Increasing market share of the emerging markets
Given their strong growth rates, the emerging markets are gaining more and more weight in the international insurance industry: the emerging markets' share of the anticipated additional premium volume is expected to rise from 20% in 2016 to 47% by 2025.
Rising standards of living and increasing insurance coverage needs are two major contributory factors. Interest rate increases and demographic trends could revitalise the life insurance segment in the industrialised countries as well.
It is expected overall that, by 2025, the market share of emerging markets in Asia will - at 21.4% - draw close to that of Western Europe (24.5%). North America will remain clearly in the lead at 27.8%
Regional distribution of total primary insurance premiums in 2016 and 2025, in %
The Central and East European markets, which currently account for about 1.6% of the global primary insurance portfolio will see higher growth rates than the Western markets. According to MUNICH Re's estimates, the region's average inflation adjusted growth rate will increase from 3.4% in 2016, to 4% in 2017 and 4.2% in 2018.
On the P/C insurance side, the CEE market will see inflation adjusted growth rates of 3.7% and 3.9% in 2017 and 2018, recording a significantly better dynamic than the Western markets, which will grow by about 1.5% p.a. For the life insurance business, the differences will be even bigger, with Western markets decreasing by 1.3% in 2016, while the CEE market went up by 4.6%. For 2017 and 2018, for the Western markets MUNICH Re expects an annual growth rate of about 1.1%, while in the CEE region the life insurance sector is expected to increase by up to 5% p.a.