Primary life
Market overview
2 700
Market size in USD billions
Estimated global premium income in 2013
The global life insurance industry generated about USD 2 700 billion in premium income in 2013, of which 16% came from emerging markets. About 85% of premium income in life insurance derives from savings and retirement products, while the protection business, which covers mortality and morbidity risks, accounts for about 15%.
Market performance
Global life insurance premiums grew by 2.9% in real terms in 2013. In advanced markets, premium income increased by 2.3%, based on strong growth in Western Europe, Canada, Australia and Japan. Premium growth stagnated in the US. In emerging markets, premium income rose 6.2%, principally in Asia and Latin America.
3%
Market performance
Estimated global premium growth in 2013
Savings and retirement product demand was weak this year, due to a combination of constrained consumer spending, price increases and reduced product guarantees.
Protection products, which exhibited generally stable results, showed a modest increase during the first nine months of 2013. In the US, sales of term insurance products rebounded for the first time since 2007. Term sales were slightly lower in Germany while disability and long-term care insurance continued to grow strongly.
Profitability in life insurance has declined slowly but steadily since the end of 2009. RoE for 2013 averaged around 9% for a sample of global composite and large life insurers. Lower profitability stems from low interest rates which have reduced investment yields and margins (the difference between earned and guaranteed interest rate), and weak premium income growth.
Life insurers’ balance sheets remain solid as companies continue to de-risk; and asset impairments have moderated as a result of stronger credit and equity markets.
Outlook
Premium income is expected to grow through 2014 in both advanced and emerging markets. The medium-term outlook will remain challenging for those advanced economies exposed to slow economic growth, low interest rates, volatile financial markets and regulatory change. In emerging markets, premium growth is expected to be over 8%, thanks to robust sales of savings products, particularly in Asia and Latin America.
Urbanisation and life and health
Demand for life and health insurance is projected to increase due to urbanisation, especially in emerging markets.
Urbanisation leads to ‘urban diseases’ such as obesity, diabetes, heart disease, stroke and some cancers. Increased and continuous exposure to high noise levels leads to hearing impairment, high blood pressure and heart disease. In poor urban areas, infectious diseases are exacerbated by unsanitary living conditions and poor access to health facilities. Motorisation leads to air pollution and road accidents. In general, cities will present a high degree of risk concentration, including pandemic risk. Health insurance products need to reflect the evolving epidemiological landscape of a more urbanised world.
The relatively higher cost of living in urban areas should lead to higher demand for protection products. Better education and financial literacy associated with cities means more urban dwellers will be able to take advantage of complex insurance/saving products such as wealth accumulation (eg, unit-linked insurance) or wealth distribution products (eg, annuities). The higher participation rate of women in the workforce further boosts household earnings while empowering a new prospective client segment for insurance products.
Insurers that endeavour to meet this demand will be supported by relatively lower distribution costs within cities, the rapid pace of technological change and the tendency towards faster adoption. On the other hand, insurers will need to continuously strengthen their models to incorporate ever-growing risk exposure, monitor emerging risks and manage risk accumulation.
Further reading:
Swiss Re’s 05/13 sigma on urbanisation in emerging markets.