Although the insurance industry saw another year of moderate global economic growth in 2015, real global direct life and non-life insurance premiums written grew by 3.8% in 2015, up from 3.5% in 2014, according to a new report from Swiss Re.
In comparison, global real gross domestic product grew by 2.5%.
In nominal dollar terms, however, premiums were down by 4.2% because of widespread currency depreciation against the U.S. dollar.
Written before the United Kingdeom vote to leave the European Union, the report notes that the global economy faces four major headwinds that will produce periods of market volatility alongside moderate growth in 2016 and 2017:
- The U.S. Federal Reserve will continue to raise interest rates.
- China continues to open its capital account.
- Commodity prices have stabilized at low levels and are unlikely to increase substantially.
- Global political developments continue to create uncertainty.
The global economy still faces many downside risks, the report says. In the United States, for example, the risk is inflation followed by more-rapid-than-expected monetary tightening. Immigration will remain an issue in Europe, and the effects of the United Kingdom's withdrawal from the European Union are as yet unknown.
Source: Swiss Re Economic Research & Consulting
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Insurance premiums in the non-life insurance sector were up in 2015. (Photo: Shutterstock)
Non-life insurance the big picture
In good news for the non-life insurance sector, the financial picture improved further in 2015, with premiums up 3.6% in real terms, higher than the 2.4% gain seen in 2014. In nominal dollar terms, non-life premiums fell 3.8% because of currency depreciations against the dollar.
In 2015, there were 353 disasters, of which 198 were natural catastrophes, the highest number ever recorded in a single year. The total of economic losses caused by all disasters were estimated at $92 billion in 2015, the report says, down from $113 billion in 2014 and below the inflation-adjusted average of $192 billion for the previous 10 years.
With total losses of $38 billion, Asia was impacted the most of all global regions. The Nepal earthquake was the largest disaster of 2015, with total losses estimated at $6 billion, which included damage in India, China and Bangladesh. The two explosions at the Port of Tianjin in China in August 2015 resulted in the biggest insured loss of the year, with an estimated property loss of $2.5 billion to $3.5 billion, making it Asia's largest man-made insured loss event ever.
Although the insurance industry covered $28 billion of losses from natural catastrophes and $9 billion from manmade disasters in 2015, there was a difference of $55 billion between total losses and insured losses. This highlights the lack of insurance protection globally against catastrophe events, the report notes.
Related: Disasters Cost Insurers $37B in 2015
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Larger capacity cargo ships means fewer of them, and lower premiums for marine insurance. (Photo: iStock)
Non-life insurers' industry outlook
Swiss Re's report found that the overall profitability of non-life insurance, measured by return on equity, dropped from 9.0% in 2014 to 7.2% in 2015, with declines in both underwriting and investment results.
Investment income as a percentage of net premiums earned was lower by 0.7 percentage points at 9.2% due to low interest rates. Underwriting profitability also dropped, with the combined ratio increasing to 98.9% in 2015 from 97.6% in 2014. But overall, the non-life sector remains well capitalized with solvency at a record high of 130% in 2015, up from 124% in 2014, the report concluded. This should allow insurers as a group to better survive periods of economic or market turmoil.
Swiss Re expects that global non-life sector growth will weaken because of moderate economic activity and soft pricing, mainly in advanced markets.
In emerging markets, Swiss Re finds that the outlook is mixed, however.
For example, emerging Asia is expected to grow, thanks to China's increasing government support for insurance as well as rate hikes in motor third-party liability insurance in India and infrastructure investments in other Asian markets.
In Central and Eastern Europe, premiums are expected to decline further due to contraction in Russia, where the economy remains in a recession. Africa, the Middle East and Central Asia are expected to grow, but at a lower rate, while Latin America faces flat premiums due to contraction in Brazil and Venezuela as well as slower growth in Argentina.
Marine and trade credit insurance
The shift of the world's economy from trade based in goods to trade based in services is likely to have a major impact on marine and trade credit insurance, the report points out. With fewer goods being shipped from country to country, and larger cargo ships, the report finds that lower exposure would have a negative impact on marine insurance premiums. Another factor lowering risk and premium rates is the increased safety of ships.
A 1% increase of trade results in a just 0.32% increase in trade credit insurance premiums, the report says. However, a global trade slowdown in economic activity is likely to have a negative impact on trade credit insurance as well.
For more detailed information about the global insurance industry, read the full report, "World insurance in 2015: Steady growth amid regional disparities."
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