Insurance stronger than GDP

On an inflation-adjusted basis, global insurance premiums contracted by 1.1% to $4,066bn in 2009, which is less than in 2008, when they shrank 3.6%, Swiss Re reports.

Life premiums fell 2% to $2,332bn in 2009, while non-life premiums remained flat at $1,735bn. In most countries (66%), insurance grew faster than GDP, which shows the robustness of the industry, Swiss Re said.

As credit and stock markets recovered in 2009, the industry was able to restore its capital base. Investment results and overall profitability also improved. For 2010, it is expected that overall premium growth will turn positive and profitability and balance sheets will continue to improve.

No shortage of capacity

During the financial crisis, the insurance industry continued to provide cover and pay claims. There was no shortage of capacity and premium rates did not increase. Unlike the banking sector, insurers did not receive government support in the form of capital or guarantees, except in a few cases.

During the crisis, non-life insurance was not significantly impacted. Despite losses on the investment side, insurers had more than enough capacity to meet demand.

Non-life premiums remained stable in 2009, falling just 0.1%. While non-life premiums fell in the US and Europe, they rose in the other regions. Given the sharp drop in GDP, this is a remarkable result, Swiss Re said.

Combined ratios

But combined ratios show that underwriting results have further weakened. In 2009, underwriting results in non-life turned negative, despite lower natural catastrophe losses and lower losses related to the US financial guarantee business, which had hurt underwriting results in 2008.

Lower prices in non-life hurt profitability in 2009. But overall profitability improved due to the recovery of credit and equity markets. Shareholders' capital also made a strong recovery. In many countries, capital had almost returned to its pre-crisis levels.

Non-life premium growth in the industrialised countries is gradually expected to rise. The continued pressure on rates will hamper profitability and limit premium growth. As interest rates are likely to stay low in 2010, investment returns will be adversely affected. Overall profitability and return on equity (ROE) will be below average.

This study is based on information from 159 countries.