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Premium growth in emerging markets is strong, but low profitability poses a challenge: Swiss Re sigma study


December 20, 2011   by Canadian Underwriter


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Premium growth in emerging markets such as Asia and Latin America has expanded about 11 times as much over the past decade as premium growth in mature markets, according to the latest Swiss Re sigma publication.
Insurance premiums in emerging markets have expanded by 11% per annum in real terms over the last decade, compared with 1.3% growth in industrialized economies, says the study, Insurance in emerging markets: growth drivers and profitability, which focuses on emerging markets in Asia and Latin America.
The report says emerging markets’ out-performance is expected to continue in the next decade, attracting the attention of global insurers looking to emerging markets for profitable growth beyond the more saturated mature markets.
“Due to their size, industrialized countries are in absolute terms still the main insurance premium contributors, but emerging markets are catching up fast,” says Oliver Futterknecht, co-author of the sigma study. “In 2010, for example, industrialized economies contributed $120 billion in additional premiums in nominal terms, with emerging markets following closely with $109 billion.
Many factors have driven premium growth in emerging markets, the study says, including a sound economic environment, improvements in insurance regulations, product innovation and a leveraging of multiple distribution channels.
However, despite strong premium growth in emerging markets, low profitability poses a challenge. “Although insurers in emerging markets have seen stellar premium expansion, achieving profitable growth is far from the norm,” the report says. “In non-life markets, 49% of all non-life insurers in the sample emerging markets recorded negative underwriting margins (underwriting results divided by direct premiums), with around 36% of non-life insurers reporting margins in the range of 0% to 10%.”