While global insurance premiums increased in 2016 across all insurance sectors, P&C profitability declined again, according to the latest Swiss Re Institute sigma study.
The study, titled "World insurance in 2016: the China growth engine steams ahead," reports that global insurance premiums increased by 3.1% in real terms in 2016. Non-life premiums — which includes property & casualty and health insurance — grew 3.7% in 2016, reflecting relatively solid expansion among the emerging countries and another exceptional performance in China.
Swiss Re's sigma study is based on the direct premium volumes of insurance companies, regardless of whether they are privately or state owned. Life and non-life premium volume in 147 countries was examined.
P&C profitability decline
The overall profitability of P&C insurance (in a sample of eight key markets) declined again in 2016, with sector ROE dropping to 6.2% from 8.1% in 2015. (See chart below.) The drop was driven by weaker underwriting results and lower investment earnings due to declining interest rates.
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Additionally, the overall combined ratio for the eight markets deteriorated from 97.8% in 2015 to 99.9% in 2016.
(Photo: Shutterstock)
However, across regions trends were mixed. In Western Europe, underwriting profitability changed little with a combined ratio of around 95%, says Swiss Re. A slight improvement in the U.K. was offset by a worsening in Germany, France and Italy. In Japan, overall underwriting results deteriorated, reflecting mainly higher losses from the Kumamoto earthquake and also higher losses in motor.
On the other hand, profitability improved in Australia due to lower property claims and large reserve releases in long-tail business.
Catastrophe losses
There were 327 disaster events in 2016, of which 191 were natural catastrophes and the rest were man-made. Total economic losses caused by all disasters were estimated at $175 billion in 2016 — the highest since 2012, and a significant increase from $94 billion in 2015.
Asia was hardest hit with total losses of $83 billion. Losses from the earthquake on Japan's Kyushu Island in April 2016 are estimated to be between $25 billion to $30 billion.
Overall, the insurance industry covered $46 billion of losses from natural catastrophes and $8 billion from man-made disasters in 2016. The earthquake in Japan was the biggest insured-loss event of the year, triggering claims of $4.9 billion.
Non-life outlook
Global non-life sector growth is expected to remain moderate, supported mainly by improved activity in the advanced economies. In North America, premium growth is projected to improve in 2017, supported by a strengthening economy and higher interest rates in the U.S.
To download the full report, visit Swiss Re Institute's website.
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