Life insurance premiums in emerging Asian markets will rebound in 2013, growing by 10 percent in real terms, according to "Global re/insurance review 2012 and outlook 2013/14," a study from Swiss Re. Globally, life insurance premiums will recover to 3.2 percent in 2013 and 3.9 percent in 2014, the study said.
Term life insurance will provide opportunities for growth due to regulatory changes and low investment yields, which will continue to slow the growth of savings products, Swiss Re said. In many crucial emerging markets in Asia, including India and China, gaps in health protection will further drive consumers toward risk protection products. India, for example has a potential shortfall of $43.6 billion in 2020, and China has a potential shortfall of $73 billion in 2020; such gaps will drive consumers toward risk protection products, Swiss Re said.
"In China, recent economic indicators are pointing to an improving outlook in 2013,” said Clarence Wong, Swiss Re Chief Economist for Asia. “Exports and industrial productions rebound amidst a more constructive global backdrop. Purchasing Managers Index (PMI) readings in recent months also suggest continuous expansion of economic activities ahead."
In 2012, global life insurance premium growth was close to zero, but Swiss Re expects 2013 to be better; emerging Asia will experience stronger premium growth, as India and China are more fully adjusted to regulations passed in 2010 and 2011. In China, an earlier decline in premiums was partly driven by regulatory changes in 2011 that constrained bancassurance sales. In India, various regulatory changes are in motion to address issues such as “mis-selling” and low transparency.
"While the short-term impact of these measures can be negative, they will nonetheless help to promote further development of the region's life insurance market in the long term," Wong says.
Advanced Asian markets are expected to maintain steady positive growth on generally stronger economic activity. Profitability will be hindered as investment yields will continue to decline as bonds mature and are replaced with lower-yielding assets, however.
Growth of nonlife insurance premiums accelerated globally in 2012, and Swiss Re said that trend likely will continue in 2013. Underwriting results also improved in 2012 compared with 2011, which had high catastrophe losses. Interest rates in advanced markets were stable or increased slightly, which did not compensate for decreasing investment yields. In 2013, reserve releases, particularly in the United States, are expected to dry up and support price increases, specifically in P&C, Swiss Re said.
Swiss Re said the nonlife insurance business in Asia maintained strong growth in past years, partly due to government policies to stimulate economic expansion through infrastructure investment. Private consumption and personal lines also benefited from expansion fuelled by domestic consumption. A steady recovery in trade, a boom in the asset and property markets and sustained investment in regional infrastructure will continue to support nonlife insurance premium growth in Asia in 2013. Growth also will be driven by improved risk awareness among corporations and households in the aftermath of a series of natural catastrophes in 2011/12, Swiss Re said.
"Another interesting development is market liberalization in the motor segment. China, for instance, has begun to allow foreign participation in the motor third-party liability business while also granting insurers more freedom in pricing,” Wong said. “Other markets are making similar moves. The drive towards liberalization and deregulation will benefit consumers and help to improve the industry's overall efficiency and competitiveness."
Overall profitability is not expected to rebound quickly, Swiss Re said. Underwriting profitability likely will improve slightly in most markets and segments in 2013 and 2014. Investment returns this year will remain low and profitability will rise slowly as prices and interest rates increase.
While the global economy continues to be weak, improvements in the U.S. housing market, fiscal and monetary stimulus in China, and a slow turnaround in the euro zone could boost growth in 2013. In major economies, monetary policy likely will remain accommodative well into 2015. However, low interest rates will reduce investment returns for insurers. In advanced markets, inflation will stay tame, but Swiss Re recommends monitoring inflationary risks in emerging markets.
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