Despite life insurance facing a challenging decade, analysts at J.P. Morgan expect a better growth outlook for the sector moving forward.
In its recent report, the firm noted that most advanced life markets, including developed markets in Asia like Hong Kong, have not seen meaningful growth over the past 5-10 years.
However, J.P. Morgan identified several regulatory and macro factors from the past decade that impacted growth, which analysts do not expect to have the same effect in the next 5-10 years.
These include the introduction of Solvency II affecting traditional life products, changing product regulations, volatile markets and weak consumer confidence post-GFC, as well as Covid-19 and ensuing lockdowns.
Moreover, during J.P. Morgan’s recent inaugural European Financials Conference in London, several life insurers highlighted key factors driving demand in life insurance markets.
Lower short-term yields and a flatter yield curve are seen as generally positive for life insurance demand, as they reduce competition from deposits and banking products. In 2023-2024, higher interest rates led to increased competition in countries like France and Italy, where some bank-distributed life products experienced higher lapses.
Higher long-term bond yields enable life insurers to offer more attractive guarantees and reduce capital requirements. In the UK and US, this supports life insurance growth, with stronger demand for defined benefit (DB) pension risk transfers and retail annuities, the latter benefiting from better pricing (higher annuity income for a given premium). DB de-risking volumes are expected to remain strong, ranging between £50-£60 billion annually.
Additionally, ageing populations are driving demand for retirement income and savings products, particularly in the UK with its semi-compulsory defined contribution pensions system. Similar trends are expected in other markets, like the Netherlands, which is transitioning to a new defined contribution system by 2028. In countries with less established private pension systems, J.P. Morgan anticipates increased pressure for pension reforms, especially as dependency ratios rise.
