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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurance markets to expand despite sluggish growth for global economy

Emerging Asia will help drive growth in insurance markets over the next two years despite a slowing world economy, Swiss Re has predicted.

Insurance builds resilience in slowing global economy ©iStock
Insurance builds resilience in slowing global economy ©iStock

Global insurance premiums are forecast to increase by 3% annually in 2020 and 2021, even with GDP growth slowing to 1.6% and 0.9% in the US and eurozone respectively.

China is set to be the main driver of industry growth, with non-life premiums forecast to increase in the country by 9% in 2020, and life premiums by 11%.

Swiss Re said it expects China to account for 60% of all premiums in Asia over the next 10 years, with expanding risk pools including non-motor personal and health cover.

“The exponential growth of mid-market private medical in China, with premiums up 1,500% over two years, offers an indication of the potential," chief economist, Jerome Jean Haegeli, said.

“Resilience levels in other emerging markets could be strengthened significantly by taking learnings from the China experience."

Swiss Re highlighted how insurance is a key contributor to economic resilience, allowing households and businesses to absorb shocks more easily.

However, it warned that demand for insurance typically falls in an economic slowdown – likely hitting profitability – with the risk of a US recession elevated at 35%.

For the non-life sector overall, the analysis shows that a 50 basis-point drop in the yield curve could widen the existing profitability gap of 6-9% of premiums by around 1.5%. This is shown below:

Source: Swiss Re
Source: Swiss Re

With monetary policy options largely exhausted, Swiss Re said that new growth recipes are needed to offset headwinds from protectionism, political uncertainty and demographic changes.

This includes fiscal spending on infrastructure and sustainable investments.

The main threat to the economic outlook is an escalation of US/China trade tensions, while the eurozone is at risk of further ‘Japanification’, typified by low growth and interest rates.

"The US/China trade conflict has been more far reaching than anticipated," Haegeli continued. "In a broader sense, geopolitical developments have not improved.

"Rather, we have seen more polarisation across the world, which has added to the environment of uncertainty. Going forward, the US/China trade conflict poses the top risk to growth."

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