Swiss Re sigma study on the worldwide insurance industry: attractive profitability in 2005, but moderate premium growth

12 July 2006, Zurich

In 2005, the worldwide insurance industry wrote premiums to the tune of USD 3 426 billion. According to a Swiss Re sigma study, life insurance grew by 3.9% and non-life by 0.6%. The 2003/04 trend towards improved capitalisation and profitability continued in 2005 in both life and non-life insurance.

Insurance premiums amounted to a total of USD 3 426 billion in 2005, which is 7.7% of worldwide economic value creation (GDP). USD 1 974 billion came from life and 1 452 billion from non-life insurance policies. According to a Swiss Re sigma study, life premiums increased by 3.9% in real terms compared to 2004. Non-life premiums, in contrast, lost momentum and grew by only 0.6%.

Industrialised and emerging markets differed markedly in premium and growth terms: the industrialised countries generated over four fifths of world premiums, or USD 2 999 billion, but grew by only 1.9%. Meanwhile, the emerging markets benefited from their hardening currencies and generated USD 427 billion in premiums, attaining a growth rate of 6.9%. South and East Asia reported particularly strong growth of 9.5%.

Looking at insurance spending, people in industrialised countries spent about 9% of the Gross Domestic Product on life and non-life protection. In the emerging markets, the respective shares ranged from 1.4% in the Middle East and Central Asia to 5% in South and East Asia.

Life insurance benefits from old-age insurance demand

Life and non-life sectors showed entirely different developments: in life insurance, the trends towards increasing life expectancy and governments shifting social security over to private systems were the main growth drivers. In 2005, life insurers sold considerably more annuity products than in the previous years. They benefited from favourable stock markets, which fuelled unit-linked policies sales. And the growing loan market generated more mortgage-related life insurance policies. Life insurers' profitability and their financial strength improved.

Changes in the legal, tax and financial market environment dampened the upsurge in some countries: in the US, the largest life insurance market, higher short-term interest rates and the poor stock market performance led to a premium drop. European life insurers have overcome their 2001–2003 crisis, which was characterised by the decline of equity capital and the loss of policyholders' confidence: in 2005 they recorded the highest premium increase since 2000.

Subdued growth in non-life insurance

The non-life sector continued to face rather saturated markets. Premium growth, which had previously been spurred by price increases, dropped to almost zero in 2005. Outside the US, retained profits and insurers' better stock market valuations led to increased insurance availability and heated up price competition in some countries. However, profitability improved in 2005: cost control and underwriting discipline yielded positive technical results for insurance companies. Good stock market returns – except for the US – further bolstered their results. Thanks to sound profitability and to reinsurance, US insurers were able to cope with the huge losses from hurricanes Katrina, Rita and Wilma.

Outlook: faster growth in life, stagnation in non-life

Premium growth in life insurance is expected to continue in 2006, given the favourable tax, demographic and financial market environment. In the US, non-life price increases will support premium growth, especially in lines of business affected by the large hurricane losses. In other industrialised countries, easing prices should lead to a slight premium decrease. Emerging markets are expected to continue on their growth path. Barring large catastrophes or stock market turmoil, profitability is expected to improve further in both the life and non-life sectors.
Note: Swiss Re's sigma study 'World insurance in 2005' examines the insurance markets of 145 countries, making explicit reference to 88.

Notes to editors

Swiss Re is the world's leading and most diversified global reinsurer. The company operates through offices in over 30 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 "AA-" by Standard, Poor's, "Aa2" by Moody's and "A+" by A.M. Best.

How to obtain a copy of this sigma study:

The English, German, French, Italian and Spanish versions of the sigma study "Solvency II: an integrated risk approach for European insurers" are available electronically on our publication section.

Printed editions of sigma No 5/2006 can now be ordered: English and German versions are now available, those in French, Italian, Spanish, Chinese and Japanese will be available soon.