Swiss Re: Financial Crisis Hurt Insurers in 2008

Swiss Re said performance was down for the world insurance market in 2008, as the global financial crisis cut into premiums in industrialized countries, particularly in the life insurance sector.

According to Swiss Re's annual sigma study, "World Insurance in 2008," a gap has emerged between the industrialized economies and their emerging counterparts, each showing a different picture in life insurance as they’re at different points in the recessionary cycle.

“The bottom line is that last year we had a decline in premium values in real terms from industrialized countries,” Daniel Staib, senior economist in economic research and consulting at Swiss Re and co-author of the report, told BestWeek Europe. “The global insurance sector shrank by 2% and there was a severe decline in investments. But emerging markets grew, although their economies did slow down later in the year than the industrialized world.

“The picture is varied across the market," he said. "Southeast Asia still grew by 20% over 2008, driven by China which grew by 40%. Unit-linked growth only really slowed towards the end of the year. Latin America grew, the Middle East grew. However, it’s worth pointing out that insurance penetration in emerging economies is still below the level of industrialized countries.”

According to Staib, the difference between industrialized and emerging economies is that many of the latter were able to benefit from surges in food, oil and other raw material prices. This means that although both are following the same basic trajectory, emerging markets will pull out of the global financial crisis later than their industrialized counterparts.

The Swiss Re report found that in 2008, worldwide insurance premiums rose to around $4.27 billion (2.61 billion pounds). However, in real terms, with the effects of inflation stripped out, premiums actually declined for the first time since 1980, with total nonlife premiums falling 0.8% and life premiums falling by 3.5%.

Still, Swiss Re said the insurance industry coped well with what it describes as the deepest financial crisis since the 1930s, as the vast majority of insurance companies had sufficient risk capital to absorb the losses. The exceptions included monoliners in the United States and a handful of U.S. and European companies that were forced to turn to their governments to be bailed out. There were also two bankruptcies in Asia.

Although individual countries are still struggling with the fiscal effects of the global financial crisis, Swiss Re said the situation seemed to be stabilizing in some areas.

“The financial markets are still very unstable, but seem to be leveling out,” said Staib. “This might have an effect later. Because of the fall in stocks markets, unit-linked products will remain unattractive to consumers for some time. I would expect flat growth in the nonlife market, whilst in life 2009 will be another difficult year, but the potential in the life sector is still there.

“Emerging markets in 2009 will slow down, but if by 2010 the global markets have sped back up then they will recover,” he said.

To complicate matters losses from natural catastrophes and man-made events were above the long-term average last year. Swiss Re found that property insurers racked up losses of $53 billion from natural catastrophes, making 2008 one of the most costly years in insurance history. Two major hurricanes, Ike and Gustav, hit the United States and caused $20 billion and $4 billion in insured losses, respectively. Europe was hit by severe storms such as Emma, which inflicted $1.3 billion in insured losses, and Hilal, which cost $1 billion. Central and southern China were hit by snowstorms and freezing rain last winter, as well as a major earthquake.

Swiss Re sees a mixed picture for the future. It sees the medium to long term outlook for life insurance as positive, although in the short term Swiss Re predicts that growth in premiums in 2009 will be subdued or even negative due to the impact of turbulent stock markets on unit-linked savings products. It does not predict a quick recovery for the life insurance sector.

The reinsurer believes results in the nonlife market will improve via higher prices and a recovery in investment results, while the life sector will improve when the capital markets also recover.

(By Marc Jones, London news editor: [email protected])