Following foreseeable improvement in human and infrastructure development in the future, Nigeria and some other emerging economies are sure to contribute immensely to the global insurance premium, according to a study published by Swiss Re Institute’s sigma.
The study, which is part of the institute’s 50th year anniversary, also revealed that global insurance premium continued to rise in 2017 with emerging markets leading the way. According to Swiss Re Group Chief Economist, Jerôme Haegeli, “for the next decade, the shift to China is likely to continue. Given the impressive number of infrastructure initiatives underway in China, China’s contribution to world insurance premiums could yet again exceed expectations. “In the following decades, other markets such as Nigeria or Kenya, India, Indonesia, Brazil, Mexico, Pakistan, could become more important.”
Nigeria, whose insurance profile had suffered stunted growth over time, recently put up a new capitalisation structure as part of reforms by the regulator, National Insurance Commission (NAICOM), to improve the fortune of the sector currently with an annual gross premium of less than N400 billion in spite of the being endowed with huge human and natural resources. The study, titled: “World insurance in 2017: Solid, but mature life markets weigh on growth.”
Global insurance premiums increased 1.5 per cent in real terms to nearly $5 trillion in 2017 after rising 2.2 per cent in 2016, said the sigma study. Global non-life premiums rose 2.8 per cent in 2017 to approximately $2.2 trillion – a further slowdown from the past two years, but slightly above the 10-year average of 2.1 per cent. Non-life premium growth in emerging markets slowed to 6.1 per cent in 2017, lower than the 9.8 per cent growth in 2016 and the 10-year average of 8.4 per cent, the study said.
Sigma noted that the slowdown was largely driven by China, where growth fell from 20 per cent in 2016 to 10 per cent in 2017 due to lower motor premium rates. Nevertheless, the report said, China continues to be the growth engine in emerging markets.
Meanwhile, non-life premium growth in advanced markets remained steady at 1.9 per cent, compared to 1.7 per cent in 2016 and somewhat above the 10-year average of 0.9 per cent. Global life insurance premiums grew only marginally by 0.5 per cent in 2017 to roughly $2.7 trillion, said sigma, explaining that falling life premiums in advanced markets, such as the U.S. and Western Europe, were the main cause of the drag on overall global premium growth. Indeed, life premiums shrank by 2.7 per cent in advanced markets in 2017. In contrast, life premiums in emerging markets jumped 14 percent, largely driven by China, and remained well above the 10-year average of 8.3 per cent, sigma said.
Given the current low levels of insurance penetration, the insurance markets in emerging countries have outperformed the corresponding economies for decades, said the report, explaining that incomes, revenues and assets of individuals and companies were growing in these markets, which in turn boosts the demand for insurance. During sigma’s 50 years of analysis of the global insurance market, Asia has been an important contributor to premium growth, the report indicated.
In 1960, advanced and emerging Asia accounted for 5 per cent of global insurance premiums, compared to 22 per cent in 2017, according to Haegeli. Non-life penetration has virtually stagnated in the advanced markets since around the turn of the century, while it has been on a declining trend in the life sector of advanced markets, the report added. Over the next few years, the Swiss Re Institute predicts that global life insurance premiums will rise, driven by strong growth in China, although profitability will continue to be under pressure as a result of too low interest rates, increasing competition and regulatory changes.
“The on-going low interest rate environment remains a major concern for life insurers’ profitability and their ability to offer attractive long term life insurance products, particularly in combination with Solvency II types of regulatory frameworks,” Haegeli affirmed.
The Swiss Re Institute also expects global non-life premiums to increase, led by advanced markets such as the U.S., where the economy is strengthening. Despite decades of the solid performance from emerging countries, the Swiss Re Institute estimates that, in the years to come, advanced markets will contribute more than half of the additional premiums in absolute terms.