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Non-life insurance premiums forecast to grow 0.8% in 2016 in Canada: Swiss Re


November 24, 2015   by Canadian Underwriter


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The worldwide demand for non-life insurance should increase in 2016 and 2017, but pressure on reinsurance profits should “drive more” mergers and acquisitions in 2015 and 2016, Swiss Re Ltd. suggested in a report announced Tuesday.

In Swiss Re’s Global Insurance Review 2015 and Outlook 2016/17, the reinsurer included a table listing actual and estimated real growth in direct premiums written.

The growth in 2014 was 2.8% worldwide, 1.9% in Canada and 3% in the United States. The estimated growth in Canada for this year is 2.7% for Canada, 3.8% for the U.S. and 2.5% worldwide. [Click image below to enlarge]

 The estimated growth in non-life insurance premiums in Canada for 2015 is 2.7% for Canada, 3.8% for the U.S. and 2.5% worldwide, Swiss Re Ltd. says

“Non-life premium growth was slower in 2015 than in 2014, in both the advanced and emerging markets,” Swiss Re stated in the report. “Global non-life premiums are estimated to have risen by 2.5% in adjusted real terms in 2015, after a 2.8%-increase in 2014. In the advanced countries, premium growth declined to 1.7% from 2.0% last year.”

In Canada, non-life premiums are forecast to grow at 0.8% in 2016 and 2.3% in 2017. Worldwide, premiums are forecast to grow at 3% next year and 3.2% in 2017. In the U.S., non-life direct premiums written are forecast to grow at 1.8% and 1.3% in 2016 and 2017 respectively.

“The global economic outlook for 2016 and 2017 is more positive and demand for non-life insurance should increase,” Swiss Re noted. “The emerging markets will be the main driver with a strong improvement to 8-9% premium growth in real terms in 2016 and 2017. Growth in advanced markets is expected to slow slightly since rates are expected to moderate further and macro conditions will only improve modestly.”

In the non-life reinsurance sector, real premium growth “is expected to weaken in 2016 and 2017,” Swiss Re stated.

“Given the strong erosion of profit margins over the last two years, property catastrophe reinsurance rates are close to bottoming out,” according to the report. “Across lines of business, the softening of average rates is expected to moderate or come to a standstill. For casualty and specialty lines, significant differences in pricing developments by market and line of business are expected.”

Swiss Re noted there have been “numerous deals” in the sector since 2014, citing 12 examples.

“The pressure on global reinsurance profits, the flight-to-quality of insurance buyers, the commoditization of property catastrophe reinsurance by reinsurance brokers and the proliferation of alternative capital have squeezed smaller traditional carriers in particular,” Swiss Re stated. “These pressures are likely to drive more deals in 2015 and next.”

Among the deals Swiss Re cited were:

–  The US$6.9-billion acquisition of PartnerRe Ltd. by EXOR S.p.A., which is still subject to closing conditions but was approved Nov. 19 by PartnerRe shareholders;

–  ACE Ltd.’s $28.3-billion acquisition of The Chubb Corp., which has been approved by shareholders of both firms and still requires regulatory approval;

–  The acquisition of London-based Lloyd’s insurer Brit PLC by Toronto-based Fairfax Financial Holdings Ltd., which has since sold 29.9% of Brit to the Ontario Municipal Employees Retirement System (OMERS);

–  Endurance Specialty Holdings Ltd.’s agreement, announced March 31, to acquire Montpelier Re Holdings Ltd.;

–  XL Group Plc’s acquisition of Catlin Group Ltd., which was completed May 1;

–  The acquisition of Platinum Underwriters Holdings Ltd. by RenaissanceRe Holdings Ltd., completed March; and

–  Tokio Marine Holdings Inc.’s $7.5 billion agreement, announced in June, to acquire HCC Insurance Holdings Inc., the parent company of Houston Casualty Company and Lloyd’s Syndicate 4141.

“The business model of a small-focus specialized underwriter no longer works in the current soft market,” Swiss Re said in Global Insurance Review 2015 and Outlook 2016/17. “Instead, smaller re/insurers are being pressured to consolidate in order to increase scale and improve their capital cost through more diversification.”

Swiss Re also discussed interest rates. [Click image below to enlarge]

Interest rates will rise in the United States, Swiss Re Ltd. reports 

The policy rate at year end for the U.S. was 0.125% in 2014 and estimated at 0.375% this year, Swiss Re noted. That rate is forecast at 1.875% at the end of 2016 and 3.875% at the end of 2017.

“Investment returns for non-life insurers remain under pressure as average yields are stalling and operating cash flows are weak, given slowing premium growth and weak underwriting results,” Swiss Re noted. “Eight years after the financial crisis, the investment environment remains challenging for fixed income securities, the main asset class in insurance, with low yields and exposure to mark-to-market losses when interest rates rise.”

As corporate bond spreads widened this year, there were mark-to-market losses, Swiss Re suggested.

“Equity and alternative investments have also added volatility to returns,” according to the report. “Portfolio yields are close to bottoming out, but even with market rates forecast to rise, insurers’ running yields will improve only gradually.”