Asia: Robust & ready
Growth in the Asian insurance market witnessed a slowdown in 2011 as regulatory changes stifled local economies. Nevertheless, the sector remains robust and looks set to outperform developed markets, reports Angela Faherty.
Asia’s insurance market will continue to outperform developed markets in 2012 despite a slowdown in economic growth across the region, a leading economist has stated. Despite the region witnessing a slowdown in the second half of 2011, overall performance in the sector is still expected to grow, says Clarence Wong, chief economist for Asia Pacific at Swiss Re.
He says: “In 2012, we expect to see a slowdown in economic growth in Asia. This slowdown started in the second half of 2011 in key markets such as China and India, while the Japanese economy is still recovering from the earthquake earlier in the year.
“Overall the growth in Asia will continue to moderate, for example in the emerging market it will be around 6 per cent for 2011 and 5.5 per cent in 2012,” he said.
Non-life market
Wong said the Asian non life insurance industry will continue to perform well in 2012, with premium expected to increase by around 6.5 per cent in real terms this year. This is still significantly higher than the global average of 2.6 per cent, he says.
Another positive for the industry will be the peaking of inflation. Wong suggested the fact that money market inflation has already peaked and is currently falling is positive for the non-life insurance sector as future claims inflation will also be lower.
Life and health
In contrast, 2011 saw a “sharp and unexpected slowdown in growth” in the life and health insurance sector in emerging Asia. Typically the life insurance industry in this region has been growing very strongly over the course of the last 10 years with the sector even witnessing a real growth rate of about 3.5 per cent during the GFC in 2008.
He said: “In 2011, we estimate growth will be about 0.5 per cent, which is hardly any growth at all. The slowdown is mainly due to the disappointing performance of the two large markets of India and China where there have been some regulatory changes that have impacted on the growth of life insurance business.”
The reasons behind the slowdown in growth can be attributed to the introduction of tighter regulations governing the distribution of insurance products for banks in China. This is expected to lead to a decline in premium in China by 6 per cent in 2011, Wong said – exceptional circumstances, given that in 2010 the market increased by 26 per cent.
Similarly in India, the tightened of regulations governing unit linked insurance products – the mainstream insurance products in India – has made it more difficult for insurance companies to structure the products which has resulted in a decline in the overall profitability of these products.
“The profitability of these products has declined so insurance companies have scaled back and as a result, the Indian market will only see modest growth of 2.5 per cent,” Wong said
In all, growth in emerging Asia is likely to contract by 2 per cent in 2011 but a full recovery is expected to be made in 2012 as most of those regulations were introduced in late 2010 meaning the impact will dissipate from the final quarter of 2011.
Protection demand
Wong says that with economic and financial risk continuing to be elevated in 2012, there will be a trend for consumers to stay away from investment and unit linked products.
This should lead to more demand for protection products in Asia and around the globe, he said.
“Whenever there are heightened financial and investment risks, protection sales improve. We have seen this pattern before during the GFC in 2008 and 2009 and even earlier during the dot.com bubble in 2001 and 2002. We expect this pattern to become more visible in 2012.”
The future
While a possible recession in Europe and the US still pose an ongoing risk to the Asian markets, particularly China, there is still no sign of the decoupling of China from the rest of the market.
Instead, Asia will continue to see robust growth in the non life and life insurance industry in 2012. However, investment income will continue to yield disappointing results because of extremely low interest rates while insurance companies will need more capital, Wong said.
“One of the key issues for the emerging Asia insurance market is to manage capital in 2012. Insurance companies will need more capital because of continued business growth in emerging markets and the tightening of regulations.
“This will be a particularly challenging task as the financial and equity markets will be in quite a volatile situation and funding costs will be quite high.
- Categories
- Insurance
- Tags:
- Clarence Wong, Swiss Re
- Author:
- Angela Faherty, afaherty@financialpublications.com.au
- Article Posted:
- February 15, 2012
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