Primary non-life

Market overview

The global non-life industry generated around USD 2100 billion of premium income in 2016, of which 20% 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 2016 than in 2015. Global primary non-life premiums are estimated to have risen by 4% in real terms in 2016, after a 6% increase in 2015.

In mature markets, premium growth decelerated to 1.7% due to weaker economic growth and a softer pricing environment in commercial insurance. The Western European markets exhibited some momentum mainly from stronger motor business in Germany and Spain. The UK and France were stable, but weak. In Italy premium income declined again, albeit at a slower pace than in previous years. Larger markets with accelerating expansion include Canada, Japan and South Korea.

Primary non-life premiums in the emerging markets grew by an estimated 5.3% in 2016, up slightly from 2015, but significantly slower than the 8% annual average growth between 2010 and 2014. The weaker increase was due to continued economic slowdown in Latin America, with inflation-adjusted declines in Brazil, Argentina and Venezuela, sluggish-to-negative growth in the larger markets in Sub-Saharan Africa, and a premium growth slowdown in China (7% vs 10% in 2015). This was partly offset by recovery in Central and Eastern Europe and strong growth in the Middle East and North Africa.

In terms of underwriting profitability, the US non-life industry’s combined ratio worsened from 98% in 2015 to 100% in 2016, driven by higher catastrophe losses — claims from Hurricane Matthew are likely to add to an above average natural catastrophe burden in 2016 — and lower reserve releases. Softening rates in commercial lines contributed to a worsening of results and a decline in premium income in this segment.

Underwriting profitability in Europe¹ was about the same in 2016 as in 2015, with an average combined ratio of around 95%. Underwriting results in Germany and France suffered from severe storms and floods (Elvira and Friederike) in May and June, which caused overall insured losses of EUR 2.7 billion (USD 3 billion). Underwriting results remained stable in Switzerland and were slightly worse in Italy, mainly driven by weaker but still profitable motor business. The earthquakes in Italy in August and October are expected to have only a minimal impact on 2016 underwriting profitability due to low insurance penetration. Other markets like the UK, the Nordic countries and Spain experienced some improvement, mainly based on motor.

Underwriting results in Japan and Australia, the largest mature markets in Asia Pacific, have been mixed. In Japan, overall underwriting results deteriorated, reflecting mainly higher natural catastrophes due to the Kumamoto earthquake and higher losses in auto insurance. Underwriting performance in Australia improved. By line of business, deteriorating liability and motor segment results were offset by improvements in property risk (homeowners, fire and industrial special risks).

Investment returns for primary non-life insurers remain under pressure as average yields are stalling and operating cash flows are weak. 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 2016, investment returns in non-life are estimated to have been about 9.5% of net premiums earned, down from 10.3% in 2015. Overall industry profitability has declined with return on equity (ROE) estimated to be 6% in 2016, down from around 8% in 2015 and 10% in 2014.²

Outlook

The global economic outlook for 2017 and 2018 is for moderate growth. With respect to primary non-life insurance, the emerging markets will be the main driver with an estimated strong improvement to 6%–7% premium growth in real terms expected in 2017 and 2018. Real growth in advanced markets is expected to slow slightly next year since macroeconomic conditions will improve only modestly.