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Insurance to buck slowing global economy

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The insurance market will be propped up in coming years by very strong demand in China and other parts of emerging Asia, helping the industry buck a trend for weakening global economic growth, Swiss Re says.

Global economic growth will weaken in 2020 and 2021, the reinsurer says, yet the world insurance market can expect to see non-life and life premiums increase by about 3% in each year.

It will be led higher by China in particular, where non-life premiums are forecast to grow by 9% in 2020 and life premiums by 11%.

China will account for 60% of all insurance premiums in Asia over the next 10 years, Swiss Re’s market outlook report predicts.

“The exponential growth of mid-market private medical in China, with premiums up 1500% over the past two years, offers an indication of the size of potential," Chief Economist Jerome Jean Haegeli said.

Expanding risk pools will include non-motor personal, medical and health covers.

Swiss Re forecasts 2020 economic growth will slow to 1.6% in the US, from an estimated 2.3% this year, and to 0.9% in the euro area. The main risk to the growth outlook is further escalation of US-China trade tensions, particularly as the main engine of the global economy will be emerging Asia, with gross domestic product growth in both India and China forecast to be nearly 6%.

Swiss Re expects strengthening in non-life insurance pricing, driven by rising loss costs in property catastrophe and US casualty, to continue.

The euro area is at risk of “Japanification”, with low and negative interest rates “here to stay”.

“In the long term, negative interest rates are negative, leading to higher household savings, misallocation of capital, higher debt levels and leverage, and lower bank and insurer profitability," Mr Haegeli says.

“A new policy mix is needed, including fiscal spending in infrastructure and sustainable investments.”

The experience of insurers in Japan in three decades of low growth and low interest rates offers pointers for peers in other regions facing a similar scenario of economic inertia, Swiss Re notes.

“In search of yield, Japan's insurers have invested much more of their assets abroad. Non-life insurers have also turned more aggressive in their investment strategy by significantly reducing cash and reserves, and increasing their exposure to equities,” the report says.

Life insurers have also changed their product mix to write more higher-margin health products and less interest rate-sensitive savings products.