Insurance Market Outlook for 2017/2018
The global economic environment continues to be a key driver for the insurance markets. We estimate that worldwide insurance premiums will grow as strongly as the global economy in the next two years, at an average rate of 4.5% (2.9% in real terms, i.e. adjusted for inflation), compared with 3.0% (2.9% in real terms) in 2016. Worldwide premium volume is likely to expand from almost €4.18tn in 2016 to over €4.56tn in 2018. Economic recovery in a number of large-volume emerging markets should be a major growth engine for the insurance industry, in particular for global property-casualty business. We expect that demand for life insurance in the emerging markets will remain at a high level and that growth in industrialised countries will be rather moderate.
Global GDP growth is likely to accelerate somewhat in the next two years. We project real growth of 2.9% in 2017 and 3.1% in 2018, compared with 2.6% in 2016. The main drivers of this trend are stronger growth in the USA, the anticipated end to the recessions in Brazil and Russia, a recovery in further commodity-exporting countries owing to increased prices, and a slight rise in global trade. For the eurozone and Japan, we project continued solid growth, but the United Kingdom is likely to start feeling the first impacts of Brexit. Growth momentum will presumably continue to slow in China. The outlook remains subject to high economic risks, particularly owing to political uncertainties.
Global property-casualty premium is expected to grow by 4% p.a. in 2017 and 2018, or by almost 2.5% when adjusted for inflation. Real growth rates will thus be over half a percentage point below the anticipated economic growth rate. However, there are significant differences in anticipated premium growth in the various regions:
In North America, premium growth is likely to remain nominally stable compared with 2016; in real terms, however, it will probably be decline, especially owing to higher inflation in the USA over the next two years. Following a period of stagnation and an (inflation-adjusted) decline in premium, we project that property-casualty business will recover in the developed markets of the Asia-Pacific region, Latin America and sub-Saharan Africa. In the latter two regions, the end of the recession and of the sharp falls in growth in important markets, such as Brazil and Argentina, Nigeria and South Africa, is expected to prompt a return to positive premium growth in 2017. For both regions, we expect a rise in annual premium to well over 5% (4% in real terms) by 2018, and a return of growth rates to the long-term mean. Growth is also likely to resume more normal levels in the developed markets of the Asia-Pacific region. Here, inflation-adjusted stagnation in premium volume in 2016 was mainly attributable to a one-off sharp decline in growth in Japan owing to regulatory changes for long-term fire business.
For countries in the Middle East and North Africa, we also project a return to their usual high growth rates of over 7% (5.5% p.a. in real terms) once the negative effects of the decline in commodity prices on the economy and the insurance industry have been overcome. For the Asian emerging markets, we are proceeding on the assumption of a slight decrease in premium growth owing to the further slowdown of the Chinese economy’s dynamic trend, but expansion is still likely to be at a very high level of over 9% (around 7.5% p.a. in real terms).
Premium development in life insurance in the industrialised countries remains challenged by low interest rates. Moreover, in 2016 many markets showed a significant decline in particular in sales of unit-liked and single-premium savings products – for instance, in Japan, Germany and Italy. For the years 2017 and 2018, we project that industrialised countries will see premium growth of around 3% on average (1.5% in real terms), which is likely to continue to fall short of GDP growth.
In most emerging markets, by contrast, we project relatively stable premium development at a high level: premium growth for 2017 and 2018 is expected to average 6.5% (5.0% in real terms) in Eastern Europe, almost 8.5% (6.5% in real terms) in Latin America, and 8.0% (around 6.5% in real terms) in the MENA region. The forecast for the countries in sub-Saharan Africa is almost 4% (a good 2.0% in real terms), which is substantially below the other regions, mainly because premium growth for South Africa is likely to be low.
The emerging markets of Asia are another exception, as they are influenced by premium development in China. We anticipate that premium growth here will be down by more than 50% in 2017, compared with almost 16% (14% in real terms) last year. The reasons for this are as follows: shorter-term savings products in life insurance are suffering from decelerated economic dynamism and lower investment results. In addition, recent regulatory measures have dampened the aggressive sale of these products as they were primarily designed for asset management purposes and offered virtually no insurance coverage. However, globally speaking, the region will probably still exhibit by far the highest growth in life insurance premium volume, at an average rate of 13% (almost 11.5% in real terms) for the years 2017 and 2018.
Overall, we project that by 2025 primary insurance premium worldwide will rise in the same measure as economic output (by some 4.5%, or almost 3% in real terms). We therefore anticipate global premium volume of around €6.35tn for 2025. The main drivers continue to be the emerging markets, whose premium growth of almost 9.5% p.a. (7.5% in real terms) should clearly outpace economic growth (around 6.5%, or 4.5.% in real terms). We project that, at almost 5% (3.0% in real terms), long-term growth in life insurance worldwide will be higher than in property-casualty insurance, which is expected to expand by almost 4.5% (2.5% in real terms).
The outlook for the insurance markets, like that of the economy, is subject to considerable uncertainty. Economic crises can have a significantly adverse impact on premium growth, particularly in property-casualty insurance, and may even trigger a contraction – such as in Latin America in 2016. Should the current political and economic risks for the economic outlook materialise, they are likely to have a negative impact on the relevant insurance markets as well.
However, the present economic downturn in a number of emerging markets should be only temporary in nature, which leads us to assume in our basic scenario that the economic environment will stabilise in the medium term. The demand for property-casualty products should therefore rise again appreciably as per capita income increases further.
Rising living standards and a simultaneous increase in insurance coverage requirements are likely to ensure that life insurance will continue to grow strongly in emerging markets in the long term. Added to this, individual countries such as China are facing demographic challenges. It is quite natural for economic dynamic trends to decline somewhat owing to saturation effects. In most industrialised countries, an increase in interest rates might trigger a gradual revival of business, particularly since the demand for private provision remains high given their ageing societies. Further stimulus could derive from new products, which will probably focus on greater flexibility, cover for biometric risks, digitalisation in sales and risk assessment, and unit-linked as well as hybrid products.