World insurance in 2015: strong or weak?

Real global direct life and non-life insurance premiums written grew by 3.8% in 2015, up from 3.5% growth in the previous year. When expressed in nominal US dollar terms, however, global insurance premiums were down 4.2% in 2015 from 2014, due to a decline in the advanced markets.

The decline in US-dollar nominal terms could be seen as a sign of weakness in the insurance markets. However, the reason for the discrepancy between growth rates expressed in real and US-dollar nominal terms is because many advanced market currencies depreciated significantly against the dollar over the course of the year.  For example, the euro was down 16.5% against the dollar in 2015, the Japanese yen was down 8.5%, the British pound was down 7.2% and the Swiss franc was down 4.9%.

The impact of the currency depreciation comes through when converting premium values expressed in local-currency into US dollar terms. Hence, for example, non-life premiums in Germany were up 2.0% in real (inflation-adjusted) terms, but down 14.7% in nominal US dollar terms. A similar picture of insurance premium development was seen in many advanced markets in 2015. This infographic explains the factors behind the divergence of real and nominal growth rates last year.

Insurance markets are solid

The currency effect is one of the main reasons sigma states premium growth rates in real terms. And on a real-terms basis, the insurance markets are solid, as the headline 3.8% growth in total premiums shows. Life premiums grew by 4% in 2015, slightly slower growth than in 2014 (+4.2), and non-life premium growth improved to 3.6% from 2.4% in the previous year. The steady performance came in spite of just modest global economic growth of 2.5%. Economic growth is a main driver of insurance demand.

Profitability in life and non-life remained under pressure in 2015. In life, moderate premium growth in many markets and the prolonged low interest rates dragged on profits. In non-life, both the underwriting and investment result were weaker than in 2014. The underwriting result was impacted by lower reserve releases and investment results were hit by low interest rates. However, the insurance industry overall remains well capitalized and hence is well-positioned to withstand periods of economic or market turmoil.

Life premium growth is expected to accelerate slightly in the advanced economies in 2016, mainly driven by a modest improvement in Western Europe and a recovery in Oceania. In the emerging markets, growth of the life sector is forecast to decelerate since premium growth in China is expected to slow from the high levels of 2015. The outlook for the non-life industry in advanced markets is more muted than for life, given expectations of a moderate economic recovery and pricing weakness. The outlook for non-life in the emerging markets is mixed. Premium growth will likely be strong in emerging Asia, mainly supported by China. In other emerging regions, however, premium growth is expected to weaken or even contract.

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