Emerging markets, and Asia in particular, are likely to become the main drivers of demand and growth in the re/insurance market as the global economy begins to slow and lose momentum over the next few years, according to Swiss Re Institute’s latest sigma report.
The report, titled ‘Global economic and insurance outlook 2020’, suggested that, while global economic growth will remain strong over the next two years, momentum has now peaked and will begin to slow.
In the short term, this still-positive growth will support the re/insurance sector, with global premiums up more than 3% annually over the next two years.
However, most of this growth will come from Asia, where Swiss Re predicts that premiums will increase at more than three times the average global rate, by close to 9%.
“The global economy has been performing well, and growth will remain solid,” said Jérôme Jean Haegeli, Chief Economist at Swiss Re. “However, the best is probably over.”
“Cyclical momentum is positive but we expect real GDP to slow by about 1-2 percentage points in most parts of the world over the next two years,” he explained. “This also takes into account mounting structural challenges to growth, such as higher debt burdens, reduced savings on account of aging societies, and low productivity.”
The findings of the sigma report echo comments made by Swiss Re’s Chief Executive Officer (CEO) Christian Mumenthaler, who recently told Bloomberg TV that he expected markets in Asia to be one of the main drivers of growth for the re/insurance industry over the next ten years.
In the U.S, Swiss Re anticipates that the economy will grow by 2.9% in real terms in 2018, but will then slow to 2.2% growth in 2019 and 1.7% in 2020 as the Federal Reserve becomes less supportive and fiscal stimulus fades.
Similarly, growth in the Euro area will slow from 1.9% in 2018 to 1.5% in 2019 and 1.4% in 2020, while weaker external demand in regions like Japan will also cause GDP growth to fall from 1.0% in 2018 to 0.6% next year.
In contrast, Swiss Re expects aggregate emerging market growth to strengthen to around 4.9% annually over 2019 and 2020, following on from a 4.7% gain this year.
This forecast is largely based on anticipation of economic recovery in countries that have struggled in recent years, such as Argentina, Brazil, South Africa and Turkey.
However, emerging Asia is forecast to experience the strongest growth, with Swiss Re claiming that the Chinese and Indian economies are likely to improve by more than 6.0% annually over the next two years.
According to sigma data, China’s share of global premiums increased from 0.8% in 2000 to 9.7% in 2017, and is forecast to expand to 16% by 2028.
Moreover, many Asian markets have progressed to the steeper area of the insurance ‘S-curve’, where the impact of income growth on insurance demand is much bigger.
“With the global economic power shift from west to east continuing unabated, China and emerging Asia in particular, will be the main source of insurance demand in the coming years,” Haegeli said. “Based on our models, we project that in US dollar terms, the growth rate of insurance premiums in emerging Asia will be more than three times that of the world average over the next two years.”
