Global economic growth to continue into 2014, emerging markets expected to drive premium growth: Swiss Re

The momentum in global economic growth achieved this year will continue into 2014, with emerging markets expected to drive premium growth and alternative capital remaining focused on transparent, well-modelled natural catastrophe business, notes Swiss Re’s Global insurance review 2013 and outlook 2014/15.

“This will support ongoing premium growth in the non-life primary market, particularly in emerging markets, with reinsurance premiums following suit,” notes a statement issued Thursday by Swiss Re, a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer.

Swiss Re reports that real (after-inflation) primary market non-life premium growth is projected to be around 2% in the advanced and close to 8% in emerging markets in 2014. The statement notes the United States economy is still growing, the euro area (while not expected to accelerate rapidly) has returned to growth, there is boosted growth in Japan (but the sustainability of this recent economic strength is uncertain) and China’s growth trend is close to 7.5%, down from 10% previously.

“Premium growth in the reinsurance sector will follow suit, but be a little stronger,” the statement from Swiss Re adds.

Real premium growth rate for primary non-life insurance by region, 2010 to 2015F:

“A return to economic growth in the mature markets is a good sign for insurance and we see a positive outlook for the next two years,” says Kurt Karl, Swiss Re’s chief economist. “Emerging markets, especially in Africa and Asia, will definitely provide some of the more spectacular growth figures in non-life business as cities grow and people look for financial protection for their property,” Karl adds.

Typhoon Haiyan is unlikely to generate large losses for non-life insurers because of the very low insurance penetration in the Philippines, currently at around 0.5% compared with an emerging market average of about 1.3%.

With respect to alternative capital – nat cat capacity provided by insurance linked security (ILS) funds, mutual funds, pension funds, hedge funds and private Equity – Swiss Re points out that this has increased sharply in recent years.

Real premium growth rate for primary life insurance by region, 2010 to 2015:

“These alternative capital providers focus mostly on the U.S. reinsurance business and retrocession, and the inflow of capital has put margin pressure on U.S. Cat business,” the statement notes. “However, the staying power of these new investors has yet to be tested by a rise in interest rates, decreasing ILS returns or large catastrophe losses,” Swiss Re adds.

“It is expected that alternative capital providers will continue to focus mostly on the U.S. reinsurance business, where well-modelled risks, low entry barriers and relatively high margins characterize the market,” notes the statement.

“Investors need well-modelled and transparent risks to invest in,” Martin Bisping, head of non-life risk transfer at Swiss Re, says in the statement. “We can expect funds to focus on established nat cat markets where the conditions are well-understood – at the moment this means the U.S. is the most attractive market,” Bisping reports.

With regard to life, Swiss Re’s outlook notes that robust emerging market growth will boost global primary life premiums by 4% in 2014 and 2015 in real terms, and life reinsurance premiums in advanced markets are expected to shrink in 2014.