New Swiss Re sigma study “World insurance in 2008” reveals falling life premiums in industrialised countries; strong growth in emerging economies

30 June 2009, Zurich

World insurance premium volume rose slightly to USD 4270 billion in 2008. However, adjusted for inflation, premiums declined by 2%. Global life premiums fell by 3.5% in 2008, mainly driven by a sharp fall in the sale of unit-linked and single premium life insurance products in the industrialised countries. Non-life premiums decreased by 0.8%.

The global financial crisis hit life insurance premium growth in particular, mainly in the second half of 2008. Sales of unit-linked products and products linked to equity markets were severely impacted by falling stock markets in 2008, causing life insurance premiums in industrialised countries to drop by 5.3% (USD 2 219 billion). Sales of non-linked savings products, such as fixed annuities and traditional life savings, continued to increase in many countries, but failed to offset the declines seen in the unit-linked business.

In contrast to the industrialised countries, life premium growth in the emerging markets accelerated to 14.6%. Daniel Staib, one of the authors of the new sigma study, said: “Since many emerging market countries profited from a sharp increase in commodity prices during the first half of last year, their economies continued to perform well, even as the decline in industrialised countries set in from September.”

As a result of the turmoil in financial markets in 2008, shareholder capital in the life insurance industry shrank by 30-40% on average, with some companies suffering declines of up to 70%. Staib noted: “The size of the loss of shareholder capital in the life insurance industry is a reflection of the fact that a life insurer not only assumes insurance risks, but also asset risks. It has to be said though that the extent of the losses does demonstrate the extraordinary dimension of the crisis.”

Non-life insurance remains profitable, despite falling premiums

In contrast to life insurance, non-life premiums declined only marginally by 0.8% in 2008 (USD 1 779 billion), mainly due to lower demand for cover and softening rates. While non-life premiums fell 1.9% in the industrialised countries, growth in the emerging markets remained strong at 7.1% compared to 2007 levels.

At the same time, underwriting results in non-life remained equally positive in most markets, despite very high losses from natural catastrophes. Towards the end of the year, rate increases were observed in selected countries and lines of business.

Outlook: subdued in 2009, recovery to be expected in 2010

“Though financial markets remain vulnerable, they have stabilised recently, reducing pressure on asset prices and shareholder capital,” said Staib. Still, according to Swiss Re’s economists, growth in life insurance premiums in 2009 is expected to remain subdued or may even turn negative as turbulent stock markets and gloomy employment prospects continue to negatively impact sales of unit-linked savings products. Markets with a large volume of single premium unit-linked business in proportion to total in-force business will be impacted the most.

Staib said: “As the economy recovers, we expect both higher life premiums and better investment results as asset prices are expected to improve. This will not only have a positive impact on profitability, but also on shareholder capital and the ability to raise capital. In the medium and long-term, the outlook for life insurance remains positive.”

In non-life, real premiums, ie premiums adjusted for inflation, are expected to remain flat in 2009, as the economic downturn is likely to curb demand, particularly in the commercial lines of business. Staib said: “Demand for personal lines of insurance, for example motor, is likely to be less affected, since insurance spending is less discretionary, particularly in the industrialised markets. Nevertheless, the economic situation will also impact this segment.”

Staib concluded: “While it is expected that the recession will reduce demand for insurance cover, capital shortages will support the upward movement of prices. Furthermore, demand for additional cover should increase in 2010 along with the economy. Profitability in non-life is likely to improve, mainly due to rising prices and stronger investment results.”

Table 1: Developments in the major insurance markets in 2008

 

Table 2: Real premium growth in Life and non-life 

Notes to editors

Swiss Reinsurance Company Ltd

Swiss Re is a leading and highly diversified global reinsurer. The company operates through offices in more than 20 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated “A+“ by Standard & Poor’s, “A1” by Moody’s and “A” by A.M. Best.

How to order this sigma study:

The English, German, French and Spanish versions of the sigma study No 3/2009, "World insurance in 2008: life premiums fall in the industrialised countries – strong growth in the emerging economies" are available electronically on our sigma page. The versions in Chinese and Japanese will appear in the near future.

Printed editions of sigma No 3/2009 in English, French, German and Spanish are also now available. The printed versions in Chinese and Japanese will be available shortly.