Primary non-life

Market overview

The global non-life industry generated around USD 2 200 billion of premium income in 2017, of which around 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

Premiums have risen moderately in almost all countries/regions in 2017 due to stronger economic growth. Global non-life premiums are up an estimated 3% in real terms, after a 2.3% gain in 2016. Underwriting conditions have remained soft, particularly in commercial insurance.

In the advanced economies, real premiums have grown by about 2% in 2017, up slightly from 1.5% in 2016. The US market expanded by 4.7%, fueled by strong growth in motor premiums. In Western Europe, stronger motor business in Germany, France, Spain and the UK supported premium growth. Growth was weak again in Italy due to continued softening in motor, albeit at a more moderate pace than in previous years. In Japan, premiums resumed mild real growth of 1% in 2017, after a 0.5% decline in 2016, which was driven by a sharp decline of long-term fire products. Compulsory motor premiums declined due to premium rates cut. In Australia, premiums were up 2%, while growth in personal lines remained solid and commercial insurance premiums returned to growth on the back of better economic performance and rising premium rates.

Non-life premiums in the emerging markets have grown by an estimated 6% in 2017, up slightly from 2016 and 2015, but slower than the 8% annual average growth between 2010 and 2014. The deceleration has been due to continued economic stagnation, and positive but slow premium growth in Latin America and Africa. Meanwhile, premiums in emerging Asia are up almost 10% driven by double-digit growth in China and India, its largest markets. In Central and Eastern Europe (CEE), premiums have grown by less than 5% this year due to contraction in Russia.

Global non-life industry profitability has declined in 2017, with return on equity (ROE) down to 3% from 6% in 2016, and well below 10% in 2013 and 2014. The 2017 results have been driven by three main factors: soft underwriting conditions, low investment yields and large natural catastrophe losses in the US. Investment returns for non-life insurers remain under pressure. Average yields are low and operating cash flows are weak given slowing premium growth and weak underwriting results. The contribution of investment returns to profitability has declined further in 2017 to around 9% of net premiums earned.

In the US, losses from hurricanes Harvey, Irma and Maria are to add a significant natural catastrophe loss burden for 2017. We expect a full-year 2017 combined ratio of around 109% for the US property & casualty (P&C) industry. During the first half of 2017, the personal lines´ combined ratio deteriorated by 0.9 percentage points to 103.8%. The combined ratio for commercial lines, however, improved 0.4 percentage points to 96.4%. Underwriting profitability in Europe was more or less stable in the first half of 2017 compared to the full-year 2016. Generally, the markets profited from low natural catastrophe losses, which helped property lines. Claims costs in motor insurance continued to trend upwards in the most important markets. In Germany, underwriting profitability fell by 1 percentage point during the first half of 2017 due to increased claims in virtually all lines of business. In Italy, the Nordics and Switzerland, underwriting profits have remained stable. Non-life insurers´ profitability in Australia has improved in 2017, despite higher natural catastrophe losses. This reflects higher premium rates, reserve releases and higher reinsurance protection. In Japan, domestic non-life insurers are estimated to have had stable underwriting profits in 2017, driven mainly by benign natural catastrophe losses.

Outlook

The global economic outlook for 2018 and 2019 is positive and demand for non-life insurance is expected to increase. Premium growth momentum is expected to accelerate slightly in nominal terms, supported by economic activity and moderate price increases. Emerging markets are expected to be the main driver of growth, with premiums forecast to rise by 6% to 7% in real terms in 2018 and 2019.

Assuming average natural catastrophe losses, overall underwriting profitability globally is expected to improve in 2018. Positive rate dynamics and demand for new types of cover is expected to support premium growth in the coming years.