Primary life

Market overview

The global life insurance industry generated about USD 2 900 billion in premium income in 2018, 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

We estimate that global life insurance premiums grew by 2% in real terms in 2018, slightly slower than the average annual growth rate of the last five years. Premiums in the advanced markets expanded by almost 2%, driven by Japan and the US, while the European markets were mainly sluggish.

The emerging market developed much slower than usual. In recent years, emerging markets have accounted for most of the acceleration in global life premium income, but their contribution will be much lower in 2018. The reason is China, which remains the engine of growth for the life industry. What happens there has large impact on the emerging market aggregate. Part-year data indicates that there will be a substantial contraction (–2%) in life premiums in China this year, due mostly due to tighter regulation of wealth-management-product (WMP) types since beginning of the year. Excluding China, we forecast emerging market life premiums to increase by 5% in 2018.

In the low interest rate environment, overall profitability in the life insurance sector – as measured by ROE – remains low. According to part-year data, the trend in the US is upwards, slowly. With an estimated ROE of 12%, North American life insurers have performed solidly this year and outperformed peers in Europe and Asia, for which 2018 ROE is estimated at 9% and 10%, respectively.

Some central banks have taken their foot off the monetary policy accelerator and interest rates are rising slowly, but are still very low. This means savings-type business will remain stressed given the associated inability of life insurers to provide attractive returns, fund guarantees, future claims and benefits as well as offer attractive prices. Many business lines are of longer duration than available assets, and insurers still need to reinvest in lower-yielding assets and/or take more asset risk, exposing their balance sheets to more financial risk.

Outlook

For the next two years, the outlook for different regions is mixed. Emerging market premium growth will accelerate again to around 9%. There is expected to be a rebound in China, where the economic backdrop remains strong and as the one-off effect of this year’s WMP shock fades. Advanced market premiums are expected to remain stable with limited upside development.