Primary non-life

Market overview

The global non-life industry generated around USD 2 000 billion of premium income in 2015, of which 19% came from emerging markets. Non-life insurance ranges from standardised motor and household insurance to sophisticated tailor-made liability and property covers, including specialty commercial and industrial risk insurance.

Market performance

Primary non-life premium growth was slower in 2015 than in 2014, in both advanced and emerging markets. Global primary non-life premiums are estimated to have risen by 2.5% in real terms in 2015, after a 2.8% increase in 2014. However, in US dollar terms, premium income declined by almost 4% as many currencies weakened against the US dollar (see section on macroeconomic developments).

In mature markets, premium growth declined to 1.7% from 2.0% last year. Western European markets slowed marginally despite moderate rate increases in Germany, France and the UK. In Italy, premium income continued to fall sharply due largely to shrinking demand for motor insurance, while the Spanish and Portuguese markets are coming off their lows. Larger markets with accelerating growth include Japan, South Korea, Spain and the Netherlands.

Primary non-life premiums in the emerging markets grew by an estimated 5.6% in 2015, also slower than in previous years. This was mainly due to economic slowdown in Latin America and Central and Eastern Europe. However, there was strong growth in emerging Asia (12%) and in China in particular, based on strong demand in motor. Premiums in other emerging Asia markets, and in the Middle East and North Africa, grew by around 6%. In Sub-Saharan Africa, premiums were up 4.5%.

In terms of underwriting profitability, the US P&C industry’s combined ratio deteriorated slightly from 97% in 2014 to 98% in 2015, while again aided by comparably low catastrophe losses, claims costs in motor insurance, both personal and commercial, and in general liability were incrementally rising again.

Underwriting profitability in Europe¹ was about the same in 2015 as in 2014, with an average combined ratio of about 94%. Underwriting results were stable to slightly stronger across the board, based on a low loss burden from natural catastrophes and solid technical results. In Germany and Italy, underwriting results in motor are moderating. This year’s large winter storms mostly affected Northern Europe, especially windstorm Elon-Felix and winter storm Niklas, which triggered more than EUR 1 billion in insured losses. The Nordic countries in particular suffered from windstorm Elon-Felix, which drove their combined ratio up by 6.5 percentage points in the first quarter. Germany was also affected by the two storms, which in part explains its higher combined ratio of 98%. In December, several storms induced heavy rains in the UK and Ireland which led to insured flood losses of around GBP 1.3 billion in the UK alone.

Underwriting results in Japan and Australia, the biggest mature markets in Asia Pacific, have been mixed this year. In Japan, overall underwriting results improved across all lines, although the combined ratio in the compulsory motor line remains high. Underwriting performance in Australia, however, deteriorated due largely to poor property risk (homeowners, fire & industrial special risks) offsetting improvements in compulsory motor. The voluntary motor and liability lines have been relatively stable.

Investment returns for primary non-life insurers remain under pressure as average yields are stalling and operating cash flows are weak. Eight years after the financial crisis, the investment environment remains challenging for fixed income securities, the main asset class in insurance, with low yields and exposure to mark-to-market losses when interest rates rise again. Portfolio yields are close to bottoming out, but even with market rates forecast to rise, insurers’ running yields will improve only gradually. For 2015, investment returns in non-life are estimated to have been about 11% of net premiums earned, down from 11.4% in 2014, and well below the 14% annual average of 1999–2007. Overall industry profitability has declined with return on equity (ROE) estimated to be 7% in 2015, down from around 9% in 2013 and 2014.²

Outlook

The global economic outlook for 2016 and 2017 is more positive and demand for primary non-life insurance is expected to increase. The emerging markets will be the main driver with an estimated strong improvement to 8%–9% premium growth in real terms expected in 2016 and 2017. Growth in mature markets is expected to slow slightly since rates are expected to moderate further and macro conditions will only improve modestly. Global premium growth is forecast to improve from 2.5% in 2015 to 3.0% in 2016 and 3.2% in 2017.