sigma No 2/2011 World insurance in 2010 Premiums back to growth – capital increases 1 Executive summary 3 Global economy: uneven recovery, interest rates remain very low 7 World insurance: recovery on track 13 Industrialised countries: recovery at diverging speeds 19 Emerging markets: China leads growth 27 Methodology and data 29 Statistical appendix Published by: Swiss Reinsurance Company Ltd Economic Research & Consulting P.O. Box 8022 Zurich Switzerland Telephone +41 43 285 2551 Fax +41 43 282 0075 E-mail: [email protected] New York Office: 55 East 52nd Street 40th Floor New York, NY 10055, US Telephone +1 212 317 5400 Fax +1 212 317 5455 Hong Kong Office: 18 Harbour Road, Wanchai Central Plaza, 61st Floor Hong Kong, SAR Telephone + 852 2582 5703 Fax + 852 2511 6603 Authors: Daniel Staib The editorial deadline for this study was Telephone +41 43 285 8136 30 May 2011. Lucia Bevere sigma is available in English (original language), Telephone +41 43 285 9279 German, French, Spanish, Chinese and Japanese. Editor sigma is available on Swiss Re's website: Brian Rogers +41 43 285 2733 www.swissre.com/sigma Managing editor: The internet version may contain slightly Thomas Hess, updated information. Head of Economic Research & Consulting, Translations: is responsible for the sigma series. CLS Communication Graphic design and production: Swiss Re Logistics / Media Production © 2011 Swiss Reinsurance Company Ltd All rights reserved. The entire content of this sigma edition is subject to copyright with all rights reserved. The information may be used for private or internal purposes, provided that any copyright or other proprietary notices are not removed. Electronic reuse of the data published in sigma is prohibited. Reproduction in whole or in part or use for any public purpose is permitted only with the prior written approval of Swiss Re Economic Research & Consulting and if the source reference “Swiss Re, sigma No 2/2011” is indicated. Courtesy copies are appreciated. Although all the information used in this study was taken from reliable sources, Swiss Reinsurance Company Ltd does not accept any responsibility for the accuracy or com- prehensiveness of the information given. The information provided is for informational purposes only and in no way constitutes Swiss Re's position. In no event shall Swiss Re be liable for any loss or damage arising in connection with the use of this information. Order no: 270_0211_en Executive summary Real premium growth 2010 After two years of falling premium volume, the global insurance industry returned to positive growth in 2010. Total premium volume rose by 2.7% in real terms¹ to Life Non-life Total USD 4 339bn, above pre-crisis levels. Capital has been fully restored in the non-life Industrialised sector. While capital continued to recover in life, solvency remained below pre-crisis countries 1.8% 1.0% 1.4% levels. Because interest rates remained at historically low levels, investment returns Emerging markets 13% 8.5% 11% and therefore overall profitability were adversely affected. World 3.2% 2.1% 2.7% In 2010, the global economy continued to recover, which supported demand for insur- ance. GDP growth was particularly strong in developed and emerging Asia. Capital markets continued to stabilise due to the low interest rate environment and rising corporate profits. Figure 1 25% Real growth rates Real premium growth since 1980 20% 15% 10% 5% 0% –5% –10% 2010 1992 1982 1998 1994 1996 1986 1988 1990 1980 1984 2002 2008 2006 2004 2000 Total Non-life Life Source: Swiss Re Economic Research & Consulting Life premiums are growing, but profitability Global life insurance premiums increased by 3.2% in 2010. Asian emerging markets is still low. and a number of large continental European markets contributed the most to growth. In the US and the UK, premiums continued to decline, although at a slower pace com- pared to 2009. The capital position of life insurers continued to recover. Improved sales, lower lapses and higher capital gains on financial assets supported operating margins. However, profitability continued to remain low due to low interest rates. Non-life growth is still weak in the indus- Global non-life insurance premiums rose by 2.1% in 2010. In emerging Asia and trialised countries, but strong in Asia. the newly industrialised countries in the region, the strong economic rebound pushed up non-life premium growth, while soft pricing continued to slow growth in Europe and the US, except in a few countries in selected lines of business. Consequently, under- writing results deteriorated further in 2010, despite average natural catastrophe losses and continuing reserve releases. Overall profitability remained low, as capital gains on invested assets only partially offset low investment yields. Nevertheless, capitali- sation reached record highs. In 2011, the economic recovery is expected to continue, supporting premium growth in life and non-life insurance in the industrialised countries and emerging markets. Profitability in both sectors will continue to be low, as interest rates are expected to rise slowly. The devastating earthquakes in Japan and New Zealand are likely to result in higher prices in those countries and help to stop the trend of softening rates worldwide. ¹ All premium growth rates provided in this study are in real terms, ie adjusted for inflation, which is measured by local consumer price indices. Swiss Re, sigma No 2/2011 1 Executive summary The insurance industry has recovered well Overall, the insurance industry has recovered well from the crisis. Demand for insur- from the crisis, but challenges remain. ance in the emerging markets is expected to continue to grow strongly in the coming years. Ageing societies will provide ample opportunities for life insurers. However, insurers face a number of challenges ahead, such as: The economic recovery could be derailed by an escalation of the European sovereign debt crisis or an oil price shock. Regulatory reform, eg Solvency II, could lead to overly stringent capital requirements, which would undermine profitability, but also affect policyholders. As market risks will also be considered under Solvency II, life insurers and non-life insurers active in long-tail business lines will face higher capital requirements. An escalation of the public debt crisis in the peripheral European countries would lead to a significant write-down of insurers’ assets, as insurers hold sovereign debt and bonds issued by banks, which are also likely to suffer under such a scenario. This study contains the latest market data available at the time of going to press. For most insurance markets, final 2010 figures were not available. Therefore, this sigma also contains provisional data released by supervisory authorities and insurance associations, or Swiss Re Economic Research & Consulting estimates. Overall this study is based on data for the countries which account for more than 99% of global life and 98% of non-life premiums. 2 Swiss Re, sigma No 2/2011 Global economy: uneven recovery, interest rates remain very low The economic recovery from the deep recession continues The economic rebound continued in 2010, The recovery of the world economy that began in mid-2009 continued in 2010, driven by Asia and Latin America. supporting the growth of insurance premiums. World gross domestic product (GDP) grew by 4.0%² in real terms to USD 63tr in 2010. In the US and Western Europe, growth was solid, but varied significantly by country. Due to the severity of the recession, overall growth has been slow, especially in comparison to past recovery phases. The recovery was weak in Central and Eastern Europe, which suffered from a severe recession in 2009, but much stronger in Asia and Latin America. Figure 2 Real growth rates Real GDP growth by region World Industrialised countries North America Western Europe Japan and newly industrialised Asian economies Oceania Emerging markets South and East Asia Latin America and the Caribbean Central and Eastern Europe Africa Middle East and Central Asia –2% 0% 2% 4% 6% 8% 10% Growth rate 2010 Annual average growth rate 2000–2009 Remarks: Countries' GDP weighted with market exchange rates. Source: Oxford Economics, WIIW, Swiss Re Economic Research & Consulting Emerging market GDP accounted for 35% The crisis has accelerated the shift of economic power to the emerging and newly of global GDP. industrialised Asian countries, where the economies recovered swiftly and currencies strengthened. The GDP of emerging Asia increased to 18% of global GDP (see Figure 3), while emerging market GDP accounted for 35% of world GDP in 2010 (2000: 21%). During the same period, real GDP per capita in the BRIC (Brazil, Russia, India, China) economies increased sharply, from 30% in Brazil to 150% in China. The demand for insurance is likely to rise as wealth in the emerging markets increases. ² The aggregation of countries is weighted by US dollar GDP (gross domestic product) based on market exchange rates. International statistics using purchasing-power parity show higher world GDP growth rates because of their heavier weighting of fast-growing countries such as China and India. Swiss Re, sigma No 2/2011 3 Global economy: uneven recovery, interest rates remain very low Figure 3 100% % of global GDP Contribution to world GDP by main regions 11.6 % 16.6% 16.8% 80% 9.6% 15.1% 17.7% 17.9% 60% 11.0% 12.1% 40% 60.8% 57.3% 20% 53.4% 0% 2000 2008 2010 Non-Asian Emerging Asia Developed Asia North America, Emerging Markets Western Europe and Oceania* * Excluding Turkey Source: Oxford Economics, WIIW, Swiss Re Economic Research & Consulting Higher inflation, particularly in the emerging While inflation rose in 2010, except in a few countries, it remained below the levels markets, was mainly driven by rising food observed in 2008, and was mainly driven by rising food and energy prices.