Primary life

Market overview

The global life insurance industry generated about USD 2 800 billion in premium income in 2017, of which about 20% came from emerging markets. Around 85% of premium income in life insurance is derived from savings and retirement products. The protection business, which covers mortality and morbidity risks and represents the balance of the market, has a declining share of premium income.

Market performance

Global primary life insurance premiums are estimated to have risen by about 3% in 2017 in real terms, up from 2% in 2016. Emerging markets, and in particular China, account for most of the recent acceleration. Life premiums in advanced markets remain flat, which is at least an improvement from the 2% decline in 2016.

Performance in the different regions has been mixed in 2017, reflecting underlying country drivers. In North America, premiums are estimated to have declined by 2%, driven mainly by lower premium income in the US particularly of individual annuity premiums due to uncertainty around the finalisation and implementation of new Department of Labor fiduciary rules. In Canada, on the other hand, premium development has contributed positively to regional performance. For Western Europe, estimates indicate that after adjusting for inflation, life premium income stagnated in 2017. Based on partial-year data, real premiums are estimated to have remained flat in the UK while declining in France. In Germany, premiums fell slightly, due largely to weaker sales of single-premium business. In developed Asia-Pacific, life premium income is estimated to have risen modestly in 2017 (+1%), driven by a sharp pick-up in Japan following a decline in 2016, and strong growth in Hong Kong, Singapore and Taiwan. In Hong Kong, individual life policies, especially non-linked whole life and non-linked endowment products, remain popular with mainland China residents.

Life and health premiums in the emerging markets are estimated to have risen by around 17% in 2017, after a 19% gain in 2016. Sustained robust growth in emerging Asia has been the most important driver; for example, in China growth was supported by vigorous sales of ordinary life products (which received a boost from regulatory promotion of protection-type solutions). Growth of emerging markets was supplemented by a healthy recovery in CEE markets, while, on the other hand, growth has remained weak in Africa, and has decelerated sharply in Latin America and the Middle East.

In the ongoing low interest rate environment, low government bond yields remain a significant headwind for life insurers. The challenge is particularly pronounced in Europe, Japan, South Korea and Australia, where many insurers are barely generating sufficient investment returns: on the one hand to meet their obligations to policyholders, reflecting the legacy of existing life insurance obligations with embedded guarantees, and the restricted ability to offer sufficiently attractive returns on new business to compete with alternative retail savings products. In this business environment, life insurers´ overall profitability remains under pressure.

The savings business contracted or slowed due to low interest rates, equity market volatility and the impact of pension reforms in some markets. Low interest rates have made it harder for insurers to earn enough investment income and in many countries, guarantees and profit sharing have been reduced. Savings-type insurance has also become more expensive for regulatory reasons (e.g., higher capital requirements for long-term guarantees, or asset/liability mismatches). This has made savings-type insurance less attractive for both policyholders and suppliers. Together with adjusting their products and offering more flexible guarantees, insurers are introducing new concepts such as a guarantee of a certain return over the full duration of the contract, rather than an annual return.

Outlook

Global life insurance premiums in real terms are forecast to rise by around 4% in 2018. The major drivers are likely to remain the emerging markets, where stable, robust economic growth, expanding populations, urbanisation and a rising middle class underpin the positive outlook. Life premium growth in the emerging markets is expected to be around 10% in 2018. Premiums in the advanced markets are expected to grow by a more modest 1‒2% after adjusting for inflation, with the Asia-Pacific region forecast to grow by 2‒3%.