Yemisi Izuora/Agency Report
Non-life insurers will have to wait until 2018 to see an upturn in premium growth, according to Swiss Re’s Global Insurance Review and Outlook.
Premium growth is forecast to fall from 3 percent in 2015 to 2.4 percent in 2016 and 2.2 percent in 2017, Swiss Re said.
By 2018 premium growth is predicted to swing back to 3 percent.
In Europe, Spain and the UK are forecast to record an increase in premium growth this year of 4.6 percent and 1.5 percent respectively.
However, the UK’s premium growth is forecast to fall to just 0.3 percent in 2017 rising to 1.4 percent in 2018.
Germany’s premium growth is forecast to drop from 3.3 percent in 2015 to 2.5 percent in 2016 and 0.9 percent in 2017, and then rise slightly to 1.1 percent in 2018.
Strong premium growth from emerging markets will boost overall growth rates.
Emerging market growth is expected to hit 5.3 percent this year, 5.7 percent in 2017 and 6.7 percent in 2018.
Much of the growth is expected to originate in Asia with premium growth forecast to reach almost 8 percent in 2017 and 9 percent in 2018.
Emerging markets will also boost non-life reinsurance, where global premiums are expected to grow by 2.7 percent in 2017 and 2.9 percent in 2018, based on higher cessions from emerging markets.
Swiss Re said the growth forecasts must be viewed amid a challenging pricing environment for insurers with deteriorating commercial rates across all lines – excluding cyber – and all regions.
In the second quarter of this year, global commercial insurance rates fell by 3.6 percent and for the 13th consecutive quarter, according to statistics from Marsh.
Swiss Re’s report identified cyber insurance as a growth opportunity for the non-life sector, where profitability has largely been propped up by low catastrophe losses and reserve releases.
In contrast to traditional lines, rates for cyber insurance continue to rise as risks become more serious and risk managers more aware. Swiss Re said premiums are particularly strong for healthcare and retail cyber risks.
The reinsurer said underwriting profitability is likely to deteriorate in 2017 and 2018.
Investment returns are also under pressure. Swiss Re said the contribution of investment returns to profitability has declined to 9.5 percent of net premiums earned in 2016 from 10.3 percent in 2015.
“Assuming average natural catastrophe losses and shrinking reserve releases, return on equity (RoE) is forecast to decline from 8 percent in 2015 to around 6 percent in 2016-18,” Swiss Re said.
Underwriting profits in Europe for the first half of 2016 were in line with last year. The market’s combined ratio was 95 percent, Swiss Re said. Losses in France and Germany from flooding in May and June raised their market’s combined ratio by a few percentage points.
But markets including the UK, Spain and Nordic countries recorded underwriting gains, mainly from motor.
The US non-life industry’s combined ratio dipped 2.2 percentage points to 99.8 percent in the first half of 2016. Losses from Hurricane Matthew in the second half of the year will make 2016 an above average natural catastrophe loss year.
Economic growth within the euro area is forecast to increase by 1 percent by 2018 and rise by 1.5 percent in the UK. Swiss Re said although the UK’s exit from the European Union will be negative, “the timing of the impact is difficult to forecast”.
“The insurance industry faces headwinds, with moderate economic growth, and still ample capacity in the markets creating a challenging pricing environment,” said Kurt Karl, Swiss Re’s chief economist.
“Premium volumes continue to grow, in both the advanced and emerging markets along with economic activity and an increase in the insurance penetration rate, particularly in emerging markets.”
In Latin America and Sub Saharan Africa premium growth is expected to return to 4 percent by 2018 with the Middle East and north Africa at 5 percent and central and eastern Europe 4 percent.
Growth rates for the life insurance market will slow over the next few years, but remain stronger than non-life markets.
Global life premiums are forecast to increase by 5.4 percent in 2016, 4.8 percent in 2017 and 4.2 percent in 2018, with growth rates of 14.9 percent for emerging markets in 2017 and 10.9 percent in 2018.
