The range of expected claims growth is expected to increase across all geographies in the next few years, with Canada and Germany historically high correlations of claims growth to wage and CPI inflation, according to Swiss Re's Roman Lechner, speaking at Swiss Re's Global Economic and re/insurance outlook on November 25.
The UK and France have historically shown low growth of claims in relation to GDP. In the life sector, profits for life assurers had been improving, with an outperformance in the UK being based on life assurers in the UK generally having a higher percentage of their assets in equities.
Lechner observed that emerging Asia was the strongest market in terms of non-life premium growth, with growth likely to improve in 2015 in all emerging markets. Emerging market premium growth would remain robust in 2016.
A major exception was Central And Eastern Europe, suffering from softness in the Russian market and down an estimated 5% in 2014. However, its five year average through to 2016 will still be higher than advanced markets. The strongest consistent growth was definitely in EM Asia, with non-life up by more than 10% every year from 2012 through to the estimates for 23014, 2015, and 2016.
Underwriting results have shown constant improvement in Western Europe since 2010, with a combined ratio of 100% in 2010 falling year on year to 95% and below in H1 2014. In the US there had been an improvement in underwriting results since 2011, but H1 2014 was worsening again.
Lechner said that reserve releases continued to support profits, but at a lowering rate.
In global non-life the results continued to be strong, helped by an absence of catastrophes. An average combined ratio of 90% in 2012 fell to 88% last year and is expected to rise back to 90% in 2014. But Lechner observed that if the unusually benign results and the reserve release levels were stripped out, then the underlying combined ratio was about 98%.
Looking ahead, Lechner said that "for casualty and specialty lines, significant differences in price developments by market and lines of business are expected".
It was also noted that loss reserves were becoming less of an advantage. While from 2004 to 2007 there was a strong short-term improvement in liability accident0year loss ratios, from 2009 to 2012 the initial loss ratios were higher (in the high 60s) and the early-year positive development was slower.
Swiss Re Chief Economist Kurt Karl had observed "a very strange period for the global economy" which was experiencing a divergence in economies. The UK and US were heading for modest inflation and rate rises, while in Western Europe "the Japan-like scenario is basically here", with a major threat of deflation. Karl observed that ECB head Mario Draghi was "on the case", but that part of the problem in Europe was a lack of unanimity, and Draghi often had to battle counterforces within the Bundesbank.
He added that it would be "the rise of Asia's middle income class that will be the fuel for growth, with China being the leader until 2020, followed by India for the next 30 years because China's population will be ageing faster.