Chapter 3 International Property Insurance Market
3.1 The World Property Insurance Market
3.1.1 The Overview of the World Property Insurance Market
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away from the soft property insurance market of the past two years. The global insurance market is experiencing the hard time. Property and casualty markets are tightening or pulling down, while not necessary hardening considerably. Competition in the global property insurance marketplace keeps strong. Insurers are aggressively seeking both present and new business opportunities and are actively competing to achieve premium revenue. As a general rule, rate decreases at renewal were still being acquired in the global casualty market, although the percentage of the reduction was not as large as earlier in the financial crisis year. Insurers are starting to push back on reduction and many are seeking to remain rates flat (Marsh, 2009).
3.1.1 The Overview of the World Property Insurance Market
Non-life insurers’ solvency turned down sharply in 2008 because of declining financial asset prices and therefore caused the capital shortage in the insurance industry. Although these days that prices stops falling, insurers will find it difficult to raise prices in the existing economic environment, especially in the industrialized countries.14 Underwriting outcome in the US will carry on being affected by losses coming up from financial crisis. In most other markets, insurers are expected to progress profitability by concentrating on underwriting discipline and reducing expenses.
The economic slump will limit demand for non-life insurance mainly in the commercial lines of business. Demand for personal lines of insurance is probable to be less affected, in view of the fact that insurance spending is less discretionary and unrestricted, in particular in the industrialized markets. Nevertheless, the economic circumstances will also impact this sector and insurance demand will recovers after 2010.15
On an inflation-adjusted basis, global insurance premium contracted by 1% to USD4066 billion in 2009. This is an improvement over 2008, when global premiums shrank 3.6%. Life insurance accounted for 57.3% of total premiums in 2009 compared to 42.7% for non-life insurance. Life premium fells 2 % to USD2332 billion in 2009, while non-life premiums remained flat at USD1735 billion. In most countries,
14 The industrialized countries include North America, Western Europe (excluding Turkey), Japan, Hong Kong, Singapore, South Korea, Taiwan, Oceania, and Israel.
15 See the report “World Insurance in 2009”, Swiss Reinsurance Company Ltd, available at http://www.swissre.com/sigma/
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insurance grew more rapidly than GDP, which illustrates the strength of the industry.
As credit and stock markets recovered in 2009, the industry was able to re-establish its capital base. Investment consequences and overall productivity also improved. After the financial crisis, it is expected that overall premium growth in the industry will turn optimistic and profitability will keep on getting better.16
Table 3-1: Premium Volume by Region and Organization─2009 Premium Volume
Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/
During the financial tsunami, the insurance industry continued to afford cover and pay claim. There was no deficiency of capacity and premium rates did not go up.
Nothing like the banking area, insurers did not obtain government support in the forms of capital or guarantees, with the exception of in a few cases. Since the middle of 2009, the economies of the emerging market countries and many industrialized countries enhanced the prospect for premium volumes.17
In general, non-life insurance was not significantly impacted in the period of financial crisis. Notwithstanding losses on the investment part, insurers had more than
16 The Study is based on the direct premium volume of insurance companies, regardless of whether they are privately or state owned. Premiums paid to state social insurers are not included. Also, the study examines non-life and life premium volume in 159 countries. See the report “World Insurance in 2009”, Swiss Reinsurance Company Ltd, available at http://www.swissre.com/sigma/
17 The emerging countries include Latin America, Central and Eastern Europe, South and East Asia, the Middle East (excluding Israel) and Central Asia, Turkey, Africa.
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declining just 0.1%. While non-life premiums cut down in the US and Europe, they climbed in the other regions. Compared to the sharp decrease in GDP, this is a remarkable consequence.Global non-life premiums fell a little by 0.1% to USD1733bn in 2009. The result was mainly driven by falling premiums in the US and Western Europe. However, there were also some positive developments. Non-life insurance in the newly industrialized Asian economies also continued to grow up.
Premium income in the industrialized countries, which produced 87% of the world’s total volume, continued to bear the after effects of the financial crisis, falling 1.8% to USD3533 billion in 2009. However, the non-life insurance premiums of 2009 in the emerging market raised by only 2.9%, while premium volume raised to USD248 billion. In more than two thirds of the emerging countries, insurance premium grew more rapidly than GDP; as a result, penetration increased. Insurance related to international trade as well as motor was in charge of the slow developments.
However, non-life premiums should increase now while the economic recovery is processing in most markets.
Table 3-2: Premium Volume by Region and Organization in Non-life Business─2009 Premium Volume
Source: Swiss Re, World Insurance in 2009, Sigma No 2/2010, http://www.swissre.com/sigma/
From Table 3-2, non-life premiums in emerging Asia grew by 14% to USD257 billion in 2009. The region’s positive performance was held up by strong development
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in China. Throughout the region, aggressive government financial support has facilitated to generate a channel of infrastructure construction developments, which in turn has benefited the non-life insurance area. However, external trade has been weak, which has decreased demand for marine insurance. Natural catastrophe losses were not anticipated to be a key issue, even though a series of typhoons hit China and Southeast Asia in mid-2009. These events were not likely to drastically lower insurers’ underwriting incomes, which were further improved by enhancing investment results
All in all, from the 2007 – 2009 global economic downturn prompting some of the major insurers to reconsider their continual attendance in the country. Since the 2007 global financial crises happened, international insurers have been weighing up business operations and moving activities worldwide to exploit developing and emerging growth markets. (Thomas, 2010)
Recently, most markets that were in recession in 2009 are on track for a strong economic recovery, which will prop up non-life insurance business. The most important challenges are continuous price pressure and growing inflation in several regional markets. At the same time, regulators are planning tighter solvency standards, which could impact capital sufficiency, especially for those small domestic insurers.