sigma re insurance report 2010

sigma

1 Executive summary

3 Global economy: uneven recovery, interest rates remain very low

7 World insurance: recovery on track

13 Industrialised countries: recovery at diverging speeds

19 Emerging markets: China leads growth

27 Methodology and data

29 Statistical appendix

No 2/2011

World insurance in 2010 Premiums back to growth capital increases

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Lucia BevereTelephone +41 43 285 9279

EditorBrian Rogers +41 43 285 2733

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The editorial deadline for this study was 30 May 2011.

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1

Swiss Re, sigma No 2/2011 1

Executive summary

After two years of falling premium volume, the global insurance industry returned to positive growth in 2010. Total premium volume rose by 2.7% in real terms to USD 4 339bn, above pre-crisis levels. Capital has been fully restored in the non-life sector. While capital continued to recover in life, solvency remained below pre-crisis levels. Because interest rates remained at historically low levels, investment returns and therefore overall profitability were adversely affected.

In 2010, the global economy continued to recover, which supported demand for insur-ance. GDP growth was particularly strong in developed and emerging Asia. Capital markets continued to stabilise due to the low interest rate environment and rising corporate profits.

Real growth rates

10%

5%

0%

5%

10%

15%

20%

25%

200

8

2010

200

6

200

4

200

2

200

0

199

8

199

6

199

4

1992

199

0

198

8

198

6

198

4

1982

198

0

Total Non-life Life

Source: Swiss Re Economic Research & Consulting

Global life insurance premiums increased by 3.2% in 2010. Asian emerging markets and a number of large continental European markets contributed the most to growth. In the US and the UK, premiums continued to decline, although at a slower pace com-pared to 2009. The capital position of life insurers continued to recover. Improved sales, lower lapses and higher capital gains on financial assets supported operating margins. However, profitability continued to remain low due to low interest rates.

Global non-life insurance premiums rose by 2.1% in 2010. In emerging Asia and the newly industrialised countries in the region, the strong economic rebound pushed up non-life premium growth, while soft pricing continued to slow growth in Europe and the US, except in a few countries in selected lines of business. Consequently, under-writing results deteriorated further in 2010, despite average natural catastrophe losses and continuing reserve releases. Overall profitability remained low, as capital gains on invested assets only partially offset low investment yields. Nevertheless, capitali-sation reached record highs.

In 2011, the economic recovery is expected to continue, supporting premium growth in life and non-life insurance in the industrialised countries and emerging markets. Profitability in both sectors will continue to be low, as interest rates are expected to rise slowly. The devastating earthquakes in Japan and New Zealand are likely to result in higher prices in those countries and help to stop the trend of softening rates worldwide.

All premium growth rates provided in this study are in real terms, ie adjusted for inflation, which is measured by local consumer price indices.

Real premium growth 2010

Life Non-life TotalIndustrialised countries 1.8% 1.0% 1.4%Emerging markets 13% 8.5% 11%World 3.2% 2.1% 2.7%

Figure 1Real premium growth since 1980

Life premiums are growing, but profitability is still low.

Non-life growth is still weak in the indus-trialised countries, but strong in Asia.

2

2 Swiss Re, sigma No 2/2011

Executive summary

Overall, the insurance industry has recovered well from the crisis. Demand for insur-ance in the emerging markets is expected to continue to grow strongly in the coming years. Ageing societies will provide ample opportunities for life insurers. However, insurers face a number of challenges ahead, such as: The economic recovery could be derailed by an escalation of the European sovereign

debt crisis or an oil price shock. Regulatory reform, eg Solvency II, could lead to overly stringent capital requirements,

which would undermine profitability, but also affect policyholders. As market risks will also be considered under Solvency II, life insurers and non-life insurers active in long-tail business lines will face higher capital requirements.

An escalation of the public debt crisis in the peripheral European countries would lead to a significant write-down of insurers assets, as insurers hold sovereign debt and bonds issued by banks, which are also likely to suffer under such a scenario.

This study contains the latest market data available at the time of going to press. For most insurance markets, final 2010 figures were not available. Therefore, this sigma also contains provisional data released by supervisory authorities and insurance associations, or Swiss Re Economic Research & Consulting estimates. Overall this study is based on data for the countries which account for more than 99% of global life and 98% of non-life premiums.

The insurance industry has recovered well from the crisis, but challenges remain.

3


Global economy: uneven recovery, interest rates remain very low

The economic recovery from the deep recession continues

The recovery of the world economy that began in mid-2009 continued in 2010, supporting the growth of insurance premiums. World gross domestic product (GDP) grew by 4.0% in real terms to USD 63tr in 2010. In the US and Western Europe, growth was solid, but varied significantly by country. Due to the severity of the recession, overall growth has been slow, especially in comparison to past recovery phases. The recovery was weak in Central and Eastern Europe, which suffered from a severe recession in 2009, but much stronger in Asia and Latin America.

2% 0% 2% 4% 6% 8% 10%

Annual average growth rate 20002009Growth rate 2010

Middle East and Central Asia

Africa

Central and Eastern Europe

Latin America and the Caribbean

South and East Asia

Emerging markets

Oceania

Japan and newly industrialised Asian economies

Western Europe

North America

Industrialised countries

World

Real growth rates

Remarks: Countries' GDP weighted with market exchange rates. Source: Oxford Economics, WIIW, Swiss Re Economic Research & Consulting

The crisis has accelerated the shift of economic power to the emerging and newly industrialised Asian countries, where the economies recovered swiftly and currencies strengthened. The GDP of emerging Asia increased to 18% of global GDP (see Figure 3), while emerging market GDP accounted for 35% of world GDP in 2010 (2000: 21%). During the same period, real GDP per capita in the BRIC (Brazil, Russia, India, China) economies increased sharply, from 30% in Brazil to 150% in China. The demand for insurance is likely to rise as wealth in the emerging markets increases.

The aggregation of countries is weighted by US dollar GDP (gross domestic product) based on market exchange rates. International statistics using purchasing-power parity show higher world GDP growth rates because of their heavier weighting of fast-growing countries such as China and India.

The economic rebound continued in 2010, driven by Asia and Latin America.

Figure 2Real GDP growth by region

Emerging market GDP accounted for 35% of global GDP.

4



0%

20%

40%

60%

80%

100%

North America, Western Europe and Oceania*

Developed AsiaEmerging Asia

% of global GDP

Non-Asian Emerging Markets

201020082000

60.8%

17.9%

9.6%

11.6%

57.3%

11.0%

15.1%

16.6%

53.4%

12.1%

17.7%

16.8%

* Excluding TurkeySource: Oxford Economics, WIIW, Swiss Re Economic Research & Consulting

While inflation rose in 2010, except in a few countries, it remained below the levels observed in 2008, and was mainly driven by rising food and energy prices. Inflation increased more in the emerging markets, as food and energy represent a higher share of consumer expenditure. Because unemployment in the developed countries remained high and capital utilisation in the industry remained relatively low, core inflation in the developed countries was contained. As a result, it was not expected to significantly drive up claims costs for non-life insurers.

Equity markets continue to recover while interest rates slowly rise

Stock markets around the world continued their recovery in 2010. As a result, the capi-tal positions and investment returns of insurers improved. Demand for unit-linked life insurance products strengthened. However, volatility remained high due to concerns about the strength of the economic recovery and the sovereign debt of the peripheral European countries.

40

5060708090

100

110120130140150 Share index, local currency, 31 December 2009 = 100

US (DJ Industrials)

Germany (Dax 30)

Japan (Nikkei 225)

France (MSCI France)

UK (FTSE 100)

MSCI Emerging Markets

May

11

Mar

11

Jan

11

Nov

10

Sep

10

July

10

May

10

Mar

10

Jan

10

Nov

09

Sep

09

July

09

May

09

Mar

09

Jan

09

Nov

08

Sep

08

July

08

May

08

Mar

08

Jan

08

Source: Datastream

Figure 3Contribution to world GDP by main regions

Higher inflation, particularly in the emerging markets, was mainly driven by rising food and energy prices.

The stock market recovery continued in 2010.

Figure 4Stock market recovery in 2010 interrupted by the looming European sovereign debt and banking crisis in the first half of the year

5


Interest rates remained at historically low levels in 2010. In fact, at the end of 2010, long-term interest rates were between 0.2pp and 0.6pp lower than at the end of the previous year. This has bolstered the accounting capital of insurers by increasing the value of bond portfolios, although the resulting low investment returns have also hurt profitability. While the narrowing of credit spreads in 2010 was interrupted by the euro sovereign debt crisis, default rates on corporate bonds decreased signifi-cantly. This development has improved insurers balance sheets and led to reduced write downs on the corporate bond portfolio.

Long-term interest rates

US Germany France Japan UK

0%

2%

4%

6%

8%

10%

12%

14%

2010

200

9

200

8

2007

200

6

200

5

200

4

200

3

200

2

2001

200

0

199

9

199

8

1997

199

6

199

5

199

4

1993

1992

1991

199

0

Source: Datastream

High oil prices and the euro area debt crisis pose risks to the economic outlook, low interest rates remain a challenge

While the world economy is expected to continue to recover, the political turmoil in the Middle East and North Africa (MENA) and the euro area debt crisis have increased uncertainty. The main threat to the global economy from the events in the MENA region is rising oil prices. A further price shock could be triggered by a spillover of the turmoil to Saudi Arabia, which accounted for 12% of global oil production in 2009. Though this is unlikely, a disruption of the oil supply from Saudi Arabia would have a much bigger impact on prices than the disruption of the oil supply from Libya, which accounts for 2% of global oil production. In contrast, the triple disaster (earthquake, tsunami and the severe nuclear accident) in Japan is most likely to have only a minor and temporary effect on the global economy, as long as nuclear pollution does not spread to a much larger area. The natural catastrophes in Japan, Australia and New Zealand in early 2011 will affect the underwriting results of domestic and global insurance companies, and could lead to higher prices in those markets. This could in turn stop the trend of softening rates in the global non-life insurance sector.

Interest rates continued to be very low; this undermined profitability, but supported the accounting capital position of insurers.

Figure 5Long-term government bond yields remained extremely low throughout the year

Turmoil in the MENA region and the earth-quake in Japan have increased uncertainty, but the economic recovery is likely to continue.

6


A slowdown of the economic recovery would undermine growth in insurance demand. If the slowdown is triggered by an escalation of the sovereign debt crises of Greece, Ireland and Portugal, it would have wider consequences for insurers. An uncontrolled default in one of these countries would likely impair European banks, which are large holders of sovereign debt securities. This could reignite a banking crisis similar to that in autumn 2008. Insurers would be affected in several ways. For example, if there are write-downs on corporate bonds issued by banks, insurers would be affected because they hold significant amounts of these securities. Second, insurers would face write-downs on their direct holdings of sovereign debt securities. Third, other risky assets would also lose value as economic growth would falter, further impairing the asset side of insurers balance sheets. Finally, another crisis would also have important medium-term consequences: interest rates would likely remain low for a prolonged period of time, depressing insurers investment returns and profitability. Governments could levy extraordinary taxes on the financial sector to restore fiscal balance sheets, as Hun-gary did in 2010. Excessive capital requirements would restrict the insurance industry and lead to negative consequences for policyholders and the economy.

While central banks have started to raise interest rates to curb inflationary concerns, there is no clear trend that long-term yields are rising. As interest rates are expected to rise only gradually, insurance sector profitability will be under pressure for some time. This is because it often takes several years for higher interest rates to impact profitability.

An escalation of the euro sovereign debt crisis would have severe consequences for insurers.

Low interest rates will likely hamper profitability for some time.


7


Global insurance premiums return to growth

Direct premiums written in the global insurance industry rose 2.7% in 2010 to USD 4 339bn after two years of contracting premium volumes. While premiums in the emerging markets grew strongly (+11%), premium growth was still weak in the industrialised countries (+1.4%).

The capital base of the industry continued to strengthen in 2010. Demand for insurance is expected to rise as the recent natural catastrophes in Japan and Oceania have high-lighted the importance of non-life insurance in mitigating the financial impact of cata-strophic events, which are still underinsured in the emerging market countries. Due to the ageing of the population, the role of life insurance is also likely to increase, especially as governments are under pressure to reduce budget deficits and address the huge liabilities of their old-age provision.

Real growth rates

10%

5%

0%

5%

10%

15%

20%

2010

200

8

200

6

200

4

200

2

200

0

199

8

199

6

199

4

1992

199

0

198

8

198

6

198

4

1982

198

0

Total Industrialised countries Emerging markets


Excessive regulation of the insurance sector could slow growth. While modern regula-tory regimes, such as Solvency II, which takes a risk-based and economic view, would support insurance growth, policy makers may be tempted to adopt overly stringent capital requirements and other measures to make the industry 100% crisis-proof. This could affect the profitability of insurance companies, leading to negative conse-quences for policyholders and the economy. While onerous capital requirements may appear to provide additional protection for policyholders, they can create distortions that ultimately harm policyholders. For example, excessive capital charges for asset risk will force life insurers out of higher performing yet more volatile corporate bonds and stocks, reducing returns attributable to policyholders and insurers profitability. In addition, excessive capital charges could also be undesirable from a macroeconomic perspective, as less risk capital would be available to finance growth.

Life insurance: growth in developed markets remains sluggish, while emerging markets resume growth

PremiumsIn 2010, global life insurance premiums grew by 3.2% to USD 2 520bn. This is higher than the ten-year average (see Figure 7) and just below the pre-crisis average (20002007). Growth in the industrialised countries was in line with the ten-year average. In some continental European countries growth was strong, driven by single-premium products with attractive guarantees. This growth is, however, likely to eva porate once interest rates rise. In the US and the UK, the decline continued in 2010, although at a significantly reduced pace. Among the industrialised Asian economies, Japan stag-nated, while Taiwan, Singapore and Hong Kong experienced double-digit increases.

Swiss Re, sigma No 3/2010 Regulatory issues in insurance.

Total premiums grew 2.7% to USD 4 339bn in 2010.

The insurance sector has successfully emerged from the financial crisis, and the growth prospects for both life and non-life are strong.

Figure 6 Premium growth strengthens in mature and developing markets

Overly stringent capital requirements could harm the insurance sector, policyholders and economic growth.

Global life premiums rose 3.2% in 2010 after falling 0.8% in 2009.

World insurance: recovery on track

8





Africa



South and East Asia

Emerging markets

Oceania


Continental Europe

Western Europe

North America


World

Real growth rates

5% 0% 5% 10% 15% 20%


Growth of life insurance in the emerging markets in 2010 nearly reached the pre-crisis level, although large differences exist among regions and countries. Growth continued to be strong in emerging Asia (+18%). In China, the largest emerging market, premiums expanded by 26%, while elsewhere in the region, premium growth was more moderate. In Latin America, growth was solid and broad based. In Central and Eastern Europe, premium growth rebounded after a sharp decline in 2009, driven in many countries by strong sales of unit-linked savings products.

No data > 20% 20% 10% 10% 5% 5% 0% 0% 5% 5% 10% 10% 20% > 20%


Figure 7Life insurance: growth resumes, but below pre-crisis level

Figure 8Life: real premium growth in 2010

9


Life insurer profitability and capital position Statutory risk capital improved in 2010 driven by stronger earnings and inflows from the capital markets. The capital recovery was partially amplified by accounting effects that tend to overestimate the assets (valued at market value) and undervalue the liabili-ties (valued at book value). These unrealised gains on fixed income portfolios, which make up the largest share of life insurers assets, will disappear once interest rates rise or bonds mature, partially offsetting the capital recovery.

Risk capital [2010 USD bn, LHS]

0

200

400

600

800

1000

1200

1400

201020092008200720062005200420032002200120000%

10%

20%

30%

40%

50%

60%

70%

Solvency ratio [risk capital/premiums, RHS]

Source: Supervisory authorities

The operating margins of life companies stabilised below pre-crisis levels in 2010. The main drivers of profitability were improved sales, low lapses (except in the UK), higher realised capital gains and the stock market recovery, which contributed to the strong performance of the variable annuity business. On the negative side, low interest rates resulted in low investment yields. Also, the low equity exposure limited the extent to which life insurers were able to benefit from improving stock markets.

Life outlookPremium growth in life is expected to continue in 2011. Growth is expected to remain strong in the emerging markets and turn positive in the US. In Western Europe, premium growth could slow slightly, as rising interest rates will make life policies with interest rate guarantees less attractive.

Profitability will remain below pre-crisis levels for some time. In the medium to long term, the macro environment will be crucial for life insurance profitability. However, regulatory reforms could adversely impact profitability. With higher charges on risky investments (under Solvency II), life companies will be forced to shift assets into less risky asset classes, such as highly rated government and corporate bonds. Insurers will also be required to set aside more capital for long-term guarantees under the new regulatory environment. This might reduce profitability and partially erode the attrac-tiveness of savings products with fixed guarantees.

Operating margin is defined as operating profit as a % of premiums written. Operating profit equals operating income minus operating expenses, where operating income is the sum of premiums written, the investment result, other technical income and fees. Operating expenses equal the sum of benefits paid, the increase in technical provisions, allocated surpluses and other technical expenses.

Life insurers' profitability and risk capital continued to recover in 2010.

Figure 9Risk capital and solvency development in life insurance (based on sample of countries: UK, Germany, France, Italy, Netherlands, Switzerland, US, Canada, Japan, Australia, China, India, Brazil, Chile, Turkey, Poland)

Life premiums should continue to expand in 2011

... but profitability will remain below pre-crisis levels.

10



Non-life: global premiums growing, but only slowly in the US and Western Europe

PremiumsAfter declining in 2008 and 2009, global non-life premiums grew by 2.1% to USD 1 819bn in 2010. This is only slightly below the ten-year average, but clearly below the pre-crisis average. Growth was solid in the newly industrialised Asian economies, particularly in Korea (+15%) and Singapore (+8.1%). In contrast, the flat development of premium volume in the US continued to drag on average growth in the industrialised countries. Premiums in Western Europe and Oceania grew, but only slightly. Sluggish premium growth overall in the industrialised countries reflected the ongoing softening of prices in many countries and lines of business.

4% 0% 4% 8% 12% 16% 20% 24%



Africa



South and East Asia

Emerging markets

Oceania


Continental Europe

Western Europe

North America


World

Real growth rates


On the back of a very solid economic performance, non-life premiums in emerging Asia sharply increased by 22%, boosted by a 28% premium increase in China. Within emerging Asia, China accounted for 73% of the regions non-life premiums in 2010. Growth was solid in the Middle East and Central Asia as well as in Latin America. In Central and Eastern Europe, non-life premiums continued to decline overall and in most of the major countries, with the exception of Poland.

No data > 20% 20% 10% 10% 5% 5% 0% 0% 5% 5% 10% 10% 20% > 20%


Non-life premiums increased again in 2010.

Figure 10Non-life insurance premium growth: recovering, but still below the long-term average in the industrialised countries

Figure 11Non-life: real premium growth in 2010

11


Catastrophe losses Natural catastrophes cost the global insurance industry roughly USD 40bn in 2010, while man-made disasters triggered additional claims of more than USD 3bn. By comparison, overall insured losses totalled USD 27bn in 2009. Despite notably higher-than-average earthquake losses, overall catastrophe claims in 2010 were roughly in line with the ten-year average due to unusually modest US hurricane losses. The 11 March Tohoku Earthquake, which falls into Japans 2010 financial year, is expected to be the most costly event for Japans insurance industry.

Profitability In 2010, the overall profitability of the non-life industry remained low. The after-tax return on equity was 6% due to soft pricing and low interest rates. Underwriting results deteriorated further in 2010. The average combined ratio of the eight leading markets rose to 103 %, compared to 101% in 2009, but was 95% as recently as 2006. The actual underwriting profitability, however, was likely to be even worse, as 2010 results from the US and large European insurers suggest that the 2010 underwriting results were supported by reserve releases of about four percentage points.

Aggregate of US, Canada, France, Germany, Italy, UK, Japan and Australia

15

10

5

0

5

10

15

20

Capital gains/losses as a % of net premiums earned

Current investment income as a % of net premiums earned

Underwriting result as a % of net premiums earned

2011201020092008200720062005200420032002200120001999

After-tax return on equity (%)

estimates /forecasts


Underwriting results fell the most in the US and turned negative in the large European markets due to dismal motor results. Earnings were stable in the European personal lines and commercial businesses. In some markets, such as Italy and the UK, rates began to rise in 2010, most notably in the personal motor business. This will positively influence the 2011 performance. In Australia, a series of natural catastrophes (bush fires, floods, storms) led to high insured losses and negative underwriting results.

Investment income as a percentage of net premiums earned fell slightly, as interest rates remained very low. On the positive side, the industry benefited from capital gains on invested assets, in contrast to the two previous years.

Swiss Re, sigma No 1/2011 Natural catastrophes and man-made disasters in 2010: a year of devastating and costly events.

The following section describing the performance of non-life insurance is based on the aggregate of eight important markets (US, Canada, UK, Germany France, Italy, Japan and Australia).

Insured losses from natural catastrophes were around the ten-year average.

Profitability remained low due to softening prices, low interest rates and above-average losses from natural catastrophes in Australia.

Figure 12Underwriting results worsened further in 2010

Underwriting results fell in the US and in some European markets, although rates are beginning to rise in some lines of business.

12


Industry capitalisation reaches record highBy the end of 2010, P&C insurers capital and solvency had set a new record. The aver-age solvency of the eight leading markets increased from 109% to 118%, exceeding the previous peak of 115% achieved in 2007. This more than compensated for the 20% drop in global capital funds during 2008.

However, the P&C industrys capital base is likely to be reduced by several develop-ments: Rising interest rates will lead to mark-to-market losses on the bond portfolios. Current capital requirements have risen due to market risks not considered before

the crisis. Rating agencies are also monitoring the industry more closely. Additionally, the EU Solvency II regulations, which explicitly incorporate capital market risks, are expected to tighten capital requirements for asset and underwriting risks.

Reserve adequacy has weakened due to low prices in the recent past. Catastrophe losses have been significantly above average in the first half of 2011.

Aggregate of US, Canada, France, Germany, Italy, UK, Japan and Australia

0

200

400

600

800

1000

1200

Shareholders' equity, USD bnPremiums earned, USD bn

201120102009200820072006200520042003200220012000199920%

40%

60%

80%

100%

120%

140%

Solvency (Capital/Premiums) right-hand scale

estimates /forecasts


Non-life outlookAs the global economic recovery is likely to continue, premium growth in 2011 is expected to remain strong in the emerging markets and improve in the developed markets, although the recovery will be restricted by further rate decreases, particularly in commercial lines of business. In motor, however, increases in rates are likely to drive premium growth. While the costs to insurers of the devastating earthquakes in Japan and New Zealand in the first quarter of 2011 are still unclear, the size of the likely insured loss suggests that rates could rise going forward. Additional factors which could lead to rising prices are: Reserving may soon prove to be insufficient, as aggressive reserve releases in past

years have thinned reserve adequacy. This could lead to adverse reserve develop-ments in 2012.

Rising interest rates will reduce the value of bond portfolios under gap accounting and reduce the capital base significantly.

Stricter solvency regulation (Solvency II) and higher capital requirements will be implemented by rating agencies going forward.

However, since underwriting results will only improve with a lag if rates rise, combined ratios are expected to continue to deteriorate in 2011.

The recovery of capital in the non-life industry continued to strengthen

but challenges remain.

Figure 13Non-life insurers' solvency recovered further in 2010

Growth of non-life insurance is likely to strengthen, but will be restricted by softening prices.

A number of factors could lead to higher prices.


13


Diverging developments in life, non-life growing but at low levels

In 2010, total insurance premiums in the industrialised countries increased by 1.4% to USD 3 689bn. In most of these countries, premiums rose. The expansion was strongest in Japan and the newly industrialised Asian countries, but weaker in the US and some European countries. Industrialised countries accounted for 85% of global insurance premiums in 2010 versus 87% in 2009.

Life insuranceAfter falling 1.6% in 2009, life insurance premiums in the industrialised countries recov-ered in 2010, rising 1.8% to USD 2 156bn. The expansion was primarily driven by the newly industrialised Asian economies and a number of large continental European markets (eg Germany, Italy and Ireland). However, premiums in the UK, US, Spain and the Netherlands fell in 2010. In half of the industrialised countries, premium growth surpassed economic growth, increasing insurance penetration.

risingpenetration

fallingpenetrationR

eal p

rem

ium

gro

wth

201

0

Real GDP growth 2010

40%

30%

20%

0%

10%

10%

20%

7%5%3%1%0%1%3%5% 9% 11% 13% 15%

Non-life insurance Life insurance GDP


Non-life insuranceNon-life premiums in the industrialised countries increased by 1% to USD 1 533bn in 2010 after slightly decreasing in 2009. As in life, strong demand in the newly indus-trialised Asian economies supported growth, while soft pricing continued to drag on growth in the US and many Western European markets. In the majority of markets, pre-mium growth fell short of economic growth, suggesting falling insurance penetration. Insurance density and penetrationAn average of USD 3 527 per capita was spent on insurance in the industrialised countries in 2010 (see Figure 15); of this amount, USD 2 069 was spent on life insur-ance while USD 1 458 was spent on non-life insurance. Since economic growth was higher than overall insurance market growth, insurance penetration decreased margin-ally to 8.7%. In fact, insurance penetration in the industrialised countries is now lower than at the turn of the century. The main factors behind this are the ongoing soft pricing conditions in non-life and the declining premium volumes in the UK and the US for the second consecutive year.

Total premiums in the industrialised countries rose slightly in 2010.

Life insurance premium income increased by 1.8% in 2010

Figure 14Life and non-life premium growth versus GDP growth in the industrialised countries in 2010

while non-life premiums increased 1%.

Insurance density increased to USD 3 527, while insurance penetration remained roughly constant at 8.7%.

Industrialised countries: recovery at diverging speeds

14




Figure 15Insurance density and penetration in the industrialised countries in 2009

0 1000 2000 3000 4000 5000 6000 7000

Life premiums per capita Premiums as a % of GDPNon-life premiums per capita

GreeceMalta

IcelandCyprus

IsraelSpain

New ZealandPortugal

South KoreaLiechtenstein

AustriaEU, 27 countries

ItalySingapore

GermanyEuroland

TaiwanAustraliaCanada

AverageHong Kong

Japan and newly industrialised Asian economiesNorway

United StatesG7

BelgiumSweden

FinlandFranceIrelandJapan

United KingdomDenmark

LuxembourgNetherlandsSwitzerland

Premiums per capita in USD

Premiums as a % of GDP

15


North America: US life premiums continue to shrink, non-life flat

Life insurance Life premiums in North America declined by 0.6% to USD 558bn in 2010 (2009: 12%). In the US, life premiums fell 0.7% (2009: 13%) due to the still challenging economic environment. New business premiums contracted for the third year in a row, mainly due to the slow recovery of employment and wage growth, although the decline was much less severe than in 2009. Individual life premiums increased modestly as a result of low-er lapses and a rebound in sales of universal life and whole life products, while sales of term products experienced their worst decline on record. Individual annuity premiums declined, as consumers scaled back their purchases of fixed annuities due to unattrac-tive return guarantees and the prospect of rising interest rates. Annuity sales began to recover in the last quarter of 2010, helped by the strong equity market, which has shown renewed interest in variable annuities as a retirement savings vehicle. Group life and annuity premiums increased marginally, reflecting the modest rise in employment and wages. The industry's capital position continued to strengthen in 2010 and capital exceeded its pre-crisis level. L&H profitability improved slightly, driven by stronger earnings from equity-linked business, but remained below its pre-crisis level. In Canada, life premium growth slowed to 1.3% in 2010 (2009: +3.5%). Strong gains in sales of individual life insurance were partially offset by a decline in annuity sales as consumers reduced purchases of fixed annuities. Canadian life companies maintained capital levels well above statutory requirements. Profitability continued to rebound in 2010, driven by improved investment results, but remained below historical norms.

Going forward, US life premiums are expected to rebound in 2011, but growth is pro-jected to be below its long-term trend due to the likelihood of a slow and protracted recovery of employment. In Canada, life premiums are expected to resume trend growth in 2011, due to the stronger economy. Profitability will benefit from rising equity markets and interest rates, but will remain pressured by low investment yields. A return to pre-crisis levels of profitability is expected in 2012 at the earliest. The industry's out-look will also be challenged by regulatory and accounting risks and uncertainties related to US government pressures to raise tax revenues, the capital rules that will apply to systemically important life insurers, and the convergence of global accounting rules.

Non-life insurancePremiums written in the non-life sector increased 0.5% to USD 724bn in 2010. Growth of 0.2% in the US marked the first increase since 2006, while Canada saw strong pre-mium growth (+4.3%), driven largely by personal lines. Meanwhile, the profitability of the non-life insurance industry in North America deteriorated in 2010. The combined ratio of US property & casualty insurers, excluding health insurers, rose to 103% in 2010 from 101% in 2009. This was primarily attributable to higher catastrophe losses, sizable underwriting losses in commercial lines, and additional losses from mortgage and financial guaranty insurers. Canadian property & casualty insurers reported a combined ratio that worsened to 101% in 2010 (2009: 100%). While interest rates remained low in 2010, insurers investment portfolios continued to recover much of the value lost during the financial crisis. US and Canadian P&C insurers' statutory ROEs fell to 6% and 7%, respectively, only slightly lower than in 2009. The normalisation of capital markets supported the industry's capital strength. The US and Canadian statu-tory surplus increased by 9% and 7%, respectively, during the year.

Looking ahead, the recovery in premium growth in 2011 is expected to continue as the economic expansion gains momentum. Softening of commercial rates has eased slightly and might be halted further by the first quarter 2011 catastrophe losses. However, the industry's growth outlook for 2011 will continue to be mired by competi-tive market pricing, low investment yields, and decreasing reserve adequacy levels.

Life premiums in the US continued to contract, but some products showed improvements.

Annuity sales began to recover in the last quarter of 2010.

In Canada, growth slowed on the back of declining sales of fixed annuities.

US life growth should rebound in 2011, but will remain below the long-term average, while Canada is expected to resume trend growth.

Premiums grew modestly in the US, but profitability of P&C insurers deteriorated.

In Canada, profitability declined on the back of low investment results.

Premiums in 2010 in North America World USD bn market shareLife 558 22%Non-life 724 40%

Real premium growth

Growth rate 2010 Annual average growth rate 20002009

1.5%

1.0%0.5%

0.0%0.5%

1.0%1.5%2.0%

2.5%

Life Non-life

16



Western Europe: life premiums continued to recover, non-life stagnated

Life insuranceIn 2010, life insurance premiums in Western Europe grew by 2.8 % (2009: +4.0%) to USD 946bn. While growth in the L&H industry overall has resumed, it varied by country. In countries like Italy, Germany and France, life insurers continued to offer relatively attractive interest guarantees in light of the historically low interest rates, thus attracting money from maturing policies as well as from the banking sector. In Denmark, Norway and Belgium, moderate growth resumed in 2010, while in Luxem-bourg, the premium volume increased by more than 22% in real terms, mainly drivenby cross-border business. However, two Western European countries experienced a further decline, although at a slower rate than in 2009. In the UK, the largest life insur-ance market, premiums fell by 3.3%. The most severe decline was observed in the Netherlands, where premiums fell by 13%, due to continued strong competition from tax privileged bank savings products, which grew strongly for the fourth consecutive year. In Spain, life premium volume fell by roughly 9%, after rising 3.3% in 2009.

The outlook is positive, driven by increased demand for protection, savings and pension products as well as reductions in social security benefits. The environment for life insurers is expected to further improve in Western Europe as interest rates increase and macro-economic conditions improve. While trend growth should resume, insurers will face certain challenges. First, the euro crisis is still looming. Direct write-downs on peripheral European government bonds in the event of a debt restructuring would likely be manage-able for the vast majority of life insurers, but the resulting stress in the banking sector could potentially wreak havoc on life insurers, which are significant holders of bank debt. Second, Solvency II, which is economic and risk-based, represents a positive step in terms of insurance regulation and may be adopted by other regulatory regimes around the world. However, key parameters have been significantly tightened in the wake of the crisis and have led to high capital requirements for the most important life insurance products. Insurers are currently looking to develop new products that are more compa-tible with Solvency II. Third, the EU Gender Directive prohibits insurers from setting prices based on gender, despite the fact that research shows that differences exist in terms of the insured risks. The likely outcome will be that prices will increase for both men and women; there is an additional risk that this directive will trigger even more regula -tory changes.

Non-life insuranceNon-life premiums in Western Europe increased slightly by 0.6% to USD 587bn in 2010 (2009: +0.4%). Germany (+1.5%), Italy (+0.1%) and the Netherlands (+1.7%) contri buted most to growth, although many countries in the region experienced premium growth. However, premiums fell in the UK (1.2%) and Spain (1.5%). In the UK, strong premium growth in the motor business could not offset declining premium income in the commercial lines business, triggered by a further softening of rates and sluggish foreign risks business. In Spain, premiums declined due to weak economic conditions. Switzerland, Belgium and Denmark also registered marginal declines. The average combined ratio for direct business increased further to 100.4% in 2010 (2009: 98.3%). While the largest European markets unanimously suffered because of the current dismal performance of the motor business, some markets, like the UK and Italy, witnessed significant rate improvements, which should lead to future improve-ments in under writing results. With investment results remaining relatively low due to the prevailing low interest rate environment, the overall net operating results declined further to 8.5% of net premiums earned.

For 2011, premium growth is expected to strengthen. While the economy in Southern Europe and Ireland continues to be weak, the recovery is stronger in the other European countries. Additionally, significant rate increases related to the unprofitable motor insurance business in several countries will also support premium growth, in particular in the largest motor markets such as the UK, Germany, France and Italy. However, overall profitability will remain below average as the commercial lines show no sign yet of rate increases, and investment incomes are expected to remain comparably low, despite the fact that interest rates are slightly rising.

Premiums increased 2.8% in Western Europe.

In most countries, premiums recovered and the industry is back on track.

However, life premiums fell in the UK, Netherlands and Spain.

The fundamental outlook is positive...

... but there are some challenges ahead:

... the euro crisis may negatively impact life insurers balance sheets;

... Solvency II will spur insurers to develop new products;

... the EU Gender Directive will have far-reaching consequences, likely to be unfavour-able for insurance customers.

Premiums increased slightly by 0.6%, while combined ratios worsened to 100.4% (2009: 98.3%)

Premiums in 2010 in Western Europe World USD bn market shareLife 946 38%Non-life 587 32%

Real premium growth


1%

0%

1%

2%

3%

4%

5%

6%

Life Life excl. UK Non-life

17


Japan and the newly industrialised Asian economies: record losses from the Tohoku Earthquake

Life insuranceIn 2010, life premium volume in Japan and the newly industrialised Asian economies increased by 2.4% to USD 609bn (2009: +1.9%). However, premiums written by Japans life insurers are estimated to have stagnated in 2010 (2009: +2.2%). Modest growth was observed in individual traditional business, while sales of annuities remained depressed. Significant insurance losses are expected from the 11 March Tohoku Earthquake (and subsequent tsunami), which resulted in the death and dis-appearance of more than 23 000 people. Apart from death benefits, insurers are also liable for substantial claims from medical and accident insurance. The overall impact on Japanese life insurers, though, is expected to remain manageable. Outside of Japan, insurance premium growth in 2010 ranged from 3.8% in South Korea to 16% in Taiwan. In South Korea, sales of new endowment products drove premium growth. Positive economic growth has helped to underpin life insurance demand in most mar-kets, despite ongoing volatility in equity markets. Overall, profitability is expected to remain stable given the persistently low interest rate environment. In Taiwan, despite positive premium growth, the appreciation of the local currency and the sovereign debt problem in Europe contributed to insurers relatively disappointing results.

The outlook for the Japanese life insurance market remains uncertain due to the recent recession, although growth prospects should improve in the second half of 2011. Out-side Japan, robust economic growth is driving demand for both traditional and invest-ment-linked insurance products. The earthquake in Japan could also raise insurance awareness and increase demand for protection-type insurance policies throughout the region. Meanwhile, regulatory changes will continue to have an impact on the opera-tions of life insurers. For instance, the Hong Kong regulator has proposed to set up a policyholders protection fund to improve consumer confidence about insurance.

Non-life insurancePremium volume in the industrialised Asian countries increased by 4.2% to USD 183bn. Japans non-life insurance premiums are estimated to have increased marginally by 0.6% in 2010 (2009: 0.9%), as further declines in property premiums offset gains in the motor and accident lines of business. Insurance losses were modest before the 11 March Tohoku Earthquake. The earthquake is expected to result in significant indus-try losses, though a precise estimate is still not available. While the government will eventually absorb most losses for household earthquake and nuclear insurance, private insurers will face losses, mainly from property and business interruption claims. In other industrialised Asian markets, non-life premiums continued to expand steadily, whereas South Korea registered strong growth of 15% over the year. Increasing demand for long-term products has driven premium growth in Korea, though profitability was hurt by the rising motor loss ratio. In other markets, growth in accident and health insurance, together with a recovery in external trade, has supported the business expansion of non-life insurers.

Looking ahead, reconstruction will add significant momentum to Japans economic growth, particularly towards the end of the current fiscal year. Many corporations will also have to review their insurance coverage in view of the latest combination of extreme events. Both factors will underpin firmer non-life insurance demand and prices in the near future. Outside Japan, insurance business will continue to benefit from robust economic growth and low interest rates. A proposal to re-introduce tariffs for nat cat policies in Taiwan could result in faster premium growth, whilst South Koreas recent implementation of the revised motor pricing scheme should help to rein in claims escalation. Accelerating inflation, however, could threaten insurance profitability in some markets.

The 2010 financial year ends March 2011. National Police Agency of Japan Emergency Disaster Countermeasures Headquarters

(as of 16 June 2011)

In 2010, life premiums dropped in Japan, but increased strongly in the other newly industrialised Asian economies.

Strong economic growth will continue to support insurance demand.

Non-life premiums rose in most markets. Major earthquake losses hurt profitability in Japan.

Premiums in 2010 for Japan and the newly industrialised Asian economies World USD bn market shareLife 609 24%Non-life 183 10%

Real premium growth


1%

0%

1%

2%

3%

4%

5%

6%

Life Non-life

18


Oceania: improvement in 2010; surging nat cat losses in 2011

Life insuranceIn 2010, the regional life premiums in Oceania increased by 2.7% to USD 39bn. In Australia, solid economic growth, boosted primarily by increased consumer spending, drove premium growth. Life insurance direct premiums rose similiarly by 2.6% (2009: 24%) over the year to USD 38bn. Risk products continued to dominate sales, followed by disability products. Profitability in 2010 improved by 4.1% over the preceding year. In New Zealand, total life insurance premiums are estimated to have increased by 5.1% in 2010 (2009: +5.3%). Faster growth was reported in individual and group risk products, while sales of whole life and endowment policies continued to languish.

The recent floods in Queensland and Victoria are expected to have a negative impact on Australias economic outlook, although reconstruction will bolster public and private investment spending. Risk awareness has increased as a result of recent earthquakes in New Zealand and Japan. On balance, the growth of the Australian life insurance market is expected to remain stable in the near future. The Australian market is consoli-dating as evidenced by the USD 13bn takeover of the ANZ business of AXA Asia Pacific Holdings Ltd by Australian wealth manager AMP Group. APRA also recently approved the takeover of Tower Australia Group Ltd by Japan's Dai-ichi Life Insurance Company Ltd.

Non-life insuranceIn 2010, non-life premiums in Oceania grew by 2% to USD 42bn. In Australia, insurance premiums are estimated to have increased by 2.3% (2009: +3.9%). Most business lines maintained stable growth over the year. Underwriting results improved in 2010 com-pared to 2009, which was hard hit by the Victoria bush fires and other catastrophic events. In New Zealand, the amount of claims incurred in the 12 months ending September 2010 increased significantly by 13.6% to USD 1.5bn. The overall combined ratio of non-life insurers climbed to 100.6% compared to 97.5% for the preceding 12-month period.

The profitability of Australian and New Zealand non-life insurers will be sharply lower due to losses from the floods in Queensland and Victoria as well as the Christchurch earthquakes. Total insurance losses arising from the January 2011 flood events in Aus-tralia were estimated to exceed USD 2.2bn, while losses from the Christchurch earth-quakes could range between USD 6bn and USD 12bn. However, these losses could be mitigated if prices increase. In addition, the non-life market should benefit from higher property values, the federal government stimulus package and reconstruction spend-ing. In recent years, the number of natural catastrophe events in terms of frequency and severity has increased in Australia. The effect of these extreme weather events will continue to have a material impact on the overall profitability of the insurance industry. Meanwhile, the earthquake has resulted in one New Zealand insurer calling in liquidators after facing solvency issues. The government has also announced that it is prepared to bail out the countrys largest insurer, AMI Insurance, if the company is unable to meet its obligations arising from the two Christchurch earthquakes.

The country was also struck by flood events at the end of 2010, whose damage was estimated to be around USD 2bn

Growth of life premiums remained steady due to rising demand for risk products.

The outlook is stable; risk awareness is rising, but economic growth has been slow.

2010 saw further increases in non-life premiums in both Australia and New Zealand. Underwriting losses are expected in 2011 due to floods and earthquakes.


Premiums in 2010 in Oceania World USD bn market shareLife 39 1.6%Non-life 42 2.3%

Real premium growth


3%

2%

1%

0%

1%

2%

3%

4%

Life Non-life

19


Strong growth resumes in the emerging markets

In the emerging markets, total insurance premiums grew by 11% in 2010 to USD 650bn, signalling a return to the strong growth rates of the past. Emerging markets accounted for 15% of the total global premium volume. In USD terms, growth was almost twice as high as in real terms due to currency appreciation. The strong economic environment clearly supported the development of the insurance segment, but as in the previous years, insurance growth outpaced economic growth (6.7%). Premiums in China, which accounts for a third of the total emerging market premium volume, increased by 26%. Except for Russia, growth was strong in the other BRIC countries ie Brazil and India. The BRICs are continuing to dominate insurance growth in the emerging markets, accounting for 61% of total emerging market premiums, up from 37% in 2000. Growth was also solid in the rest of emerging Asia, Latin America and the Middle East. However, premiums shrank in Africa and Central and Eastern Europe.

Life insuranceLife premium growth in the emerging markets strengthened in 2010, increasing by 13% to USD 364bn (2009: +6.0%). While overall growth was almost back to the ten-year average, it was still below pre-crisis growth rates, except for Latin America and the Middle East. The regional average growth rates do not reveal the often large differences in growth rates across countries. In emerging Asia, for example, the boom in China pushed up overall growth in the region, while in Central and Eastern Europe, slow growth in Poland, the largest regional market, dragged down regional growth.

Non-life insuranceNon-life premiums grew by 8.5% to USD 286bn in 2010 (2009: +3.1%). Despite strong growth in 2010, non-life premiums in the emerging markets were still slightly below the ten year average. Premiums rose the fastest in China (+28%); however, premium growth was also solid in most of the other major non-life markets. Notable exceptions were Mexico, where a two-year programme by the state-owned oil com-pany is only up for renewal in 2011, and Russia, which posted weak results across all lines. Premiums declined in the Central and Eastern European region due to the fragile economic recovery. However, the decline in premium volume may understate demand for insurance in the region, since business in the EU countries is increasingly being written by carriers outside the various countries under the Freedom to Provide Service (FPS) agreement.

Premium growth is once again strong in the emerging markets.

Life premiums rose 13% to USD 364bn and are nearly back to the ten- year average growth rate...

while non-life premiums increased by 8.5% to USD 286bn; growth remained below the ten-year average.

Emerging markets: China leads growth

20



risingpenetration

fallingpenetration

Rea

l pre

miu

m g

row

th 2

010

Real GDP growth 2010

100%

80%

60%

40%

20%

0%

20%

2%0%2%4% 4% 6% 8% 10% 12%

Non-life insurance Life insurance GDP


Insurance density and penetrationIn 2010, an average of USD 110 per capita was spent on insurance in the emerging markets; of this amount, the majority was spent on life insurance (USD 61) versus USD 49 for non-life insurance. Growth of insurance premiums continued to outpace general economic growth; hence, insurance penetration (ie premiums as a % of GDP) continued to increase, rising to 3% in 2010. Due to a phase of solid economic growth in the emerging markets since 2000, insurance penetration has increased by 50%, underlining the growing importance of the insurance sector in the emerging market economies. Even by country, premiums grew faster than GDP in the majority of life and non-life markets (see Figure 16).

Figure 16Life and non-life premium growth versus GDP growth in the emerging markets

Average premiums were USD 110 per capita, or 3% of GDP.

21


0 500 1 000 1 500 2 000 2 500

Premiums per capita in USD

BahamasSlovenia

United Arab EmiratesSouth Africa

MacaoCzech Republic

Trinidad and TobagoQatar

BahrainChile

SlovakiaPoland

MalaysiaNamibiaHungary

CroatiaBrazil

RussiaVenezuela

PanamaOman

LebanonArgentina

KuwaitUruguayJamaicaThailand

LithuaniaSaudi Arabia

MexicoPR China

Costa RicaBulgaria

ColombiaRomania

TurkeyAverage

SerbiaJordan

El SalvadorEcuador

MoroccoPeru

TunisiaDominican Republic

IranIndia

KazakhstanUkraine

IndonesiaSri Lanka

AlgeriaPhilippines

KenyaEgypt

VietnamNigeria

PakistanBangladesh

Life premiums per capitaNon-life premiums per capita Premiums as a % of GDP

Premiums as a % of GDP


Figure 17Emerging markets: insurance densityand penetration

22



South & East Asia: favourable outlook

Life insuranceLife insurance premiums rose strongly by 18% in 2010 to USD 238bn (2009: +12%) across South & East Asian markets. Premium growth in China soared by 26% (2009: +13%), reflecting strong demand for both traditional and investment-linked products. However, the introduction of tighter bancassurance regulations slowed sales through bank branches towards the end of the year. In India, premium growth slowed to 4.2% in 2010 (2009: +7.9%). The regulatory landscape has changed with the IRDA announcing a series of actions and new regulations related to unit-linked insurance plans. These measures have put pressure on the underwriting margins of life insurers and slowed the growth of new business. Meanwhile, other Southeast Asian markets reported robust premium expansion between of 7% and 18%, alongside improving consumer sentiments, which have bolstered sales of investment-type products. Profita-bility is likely to remain stable, since interest rates have remained low.

The outlook for 2011 remains positive, but varies across the markets. Stringent regula-tion is the key challenge. In China, the implementation of firm regulations on banc-assurance could drag on premium growth; but, rising interest rates bode favourably for insurers investment results. Indian insurers are likely to see further improvements in investment yields alongside rising consumer demand. Meanwhile, regulations recently disclosed regarding unit-linked insurance products are expected to prompt insurers to shift from these products to traditional protection and endowment products. Unit-linked products will nevertheless remain a key product of insurers in the longer term considering their wide popularity and increased transparency in India. In other Southeast Asian markets, the positive economic outlook will continue to underpin growth, but regulatory changes mainly in the form of tighter solvency standards and higher consumer protection standards will demand life insurers attention.

Non-life insuranceNon-life premiums in emerging Asia rose sharply by 22% in 2010 to USD 98bn (2009: +14%). In China, a full pipeline of infrastructure projets, as well as growth in policy-driven agricultural and liability insurance, have contributed to robust premium growth of 28% (2009: +19%). In India, premiums grew solidly by 9.8% (2009: +5.4%) mainly due to the strong performance of the motor and property businesses as well as mono-line health insurers, which reported very strong growth in their portfolios. Most other Southeast Asian markets also reported solid premium growth over the year. Underwriting losses have led regulators in some markets to review current tariff systems. Profitability is estimated to have improved in the absence of major losses. While China was hit by a strong earthquake in April and endured a wave of floods in the middle of the year, insurance losses were limited due to the still low insurance penetration.

The industry outlook in most markets is expected to improve further in 2011. A cyclical upswing in Chinas motor premiums will underpin further improvement in this line of busi-ness, while the termination of subsidies for small cars and the introduction of vehicle registration quotas in Beijing will have a negative impact on motor insurance sales. In India, more foreign insurers are expected to enter the market in collaboration with local partners. Several banks are also planning to enter the non-life sector in order to diversify their portfolios and broaden their product offerings. This will further fragment the market and increase competitive pressure. Meanwhile, the 2011 earthquakes in Japan and New Zealand could prompt corporations to review and improve their insur-ance protection against business interruption. The major challenges are continuous price pressure and rising inflation in some countries. Additionally, regulators are consider-ing raising solvency standards, which could impact the capital adequacy of smaller domestic insurers.

Strong life premium growth has been observed in most markets in 2010.

Rising interest rates bode favourably for insurers investment results in 2011.

The robust economic outlook supports insurance growth.

Premiums in 2010 in South and East Asia World USD bn market share Life 238 9.5%Non-life 98 5.4%

Real premium growth


0%

5%

10%

15%

20%

Life Non-life

23


Latin America and the Caribbean: stronger growth

Life insurance Life insurance premiums in Latin America and the Caribbean accelerated by 12% to USD 55bn in 2010 (2009: +7.4%). Premium volume in USD terms grew at almost 30% as many currencies in the region appreciated during 2010. Since premium growth in the region far exceeded the global life insurance industrys overall growth, the regions share of the world market increased in 2010 (+2.2%) versus +1.8% in 2009. The main contributor to overall life growth was Brazil, where premiums rose 13%. Chile, Argentina and Peru also contributed significantly; premium growth for these three countries combined exceeded 20%. Among the larger life markets in the region, Colombia was the only country where premiums fell (0.7%); the decline was due to shrinking pension-related lines.

Going forward, life premium growth is expected to continue to grow at double-digit rates on the back of a buoyant economic environment. In addition, insurers are successfully extending their product offers to individuals in the medium and lower income groups. The higher penetration will, however, increasingly expose life insur-ers to catastrophic events, such as floods or pandemics. One of the key challenges is that rising inflation is likely to undermine demand for savings products.

Non-life insuranceIn 2010, non-life premiums in the region grew by 5.5% to USD 73bn (2009: +2.9%). The rebounding economy supported premium growth across the region and, as in life, Brazil was the largest contributor to regional non-life premium growth. This was driven by the double-digit growth of motor, the biggest non-life line in Brazil. Extended war-ranty in property and group accident also contributed to the strong expansion in Brazil, while rural and special risk lines underperformed. Argentina was another major contri-butor to regional growth. Chile, Colombia and Peru also exceeded the regional average, but their contribution to regional growth was limited due to the relative size of their insurance markets. In Mexico, non-life premiums decreased by 4.8% due to the absence of premiums from the state-owned oil company in 2010. According to the Mexican insurance supervisor, premium volume in 2010 would also have grown if adjusted for the national oil company. The non-life insurance market of Venezuela, which was the third biggest in the region in 2009, fell to fourth place as premiums contracted considerably to USD 7.9bn (2009: USD 12.3bn) due to the devaluation of the local currency.

The massive investments expected in infrastructure and energy are likely to drive growth in the region in the short- and medium term. The increase in sums insured and exposure will, however, be partially compensated by competitive pricing. Insurers could be tempted to underprice inflation, which would have an impact on the results of long-tail business such as liability. In 2011 and 2012, insurers in Brazil and Argentina will probably also face higher prices and less capacity from reinsurers due to stricter reinsurance regulations.

The multi-line, multi-year policy of the state-owned oil company Pemex was placed in 2009 and will only be renewed in 2011.

Growth in life premiums accelerated to 12% in 2010 due to strong growth in Brazil, Chile and Argentina.

The boom should continue, but rising inflation is a challenge.

The rebounding economy supports non-life growth.

Premiums in 2010 in Latin America and the Caribbean World USD bn market shareLife 55 2.2%Non-life 73 4%

Real premium growth


0%

2%

4%

6%

8%

10%

12%

Life Non-life

24



Central and Eastern Europe: back to growth in life, while non-life continues to contract

Life insuranceIn 2010, premium growth in the CEE region was once again positive at 5.7% (2009: 19%), with premiums rising to USD 20bn. Premium volume grew strongest in Russia (+34%), the Czech Republic (+16%) and the Baltic states (+25%), where premiums rebounded after declining by nearly 30% for two years due to the deep economic crisis. In Poland, the largest life market in the region, premiums grew by 1.9%, driven by strong sales of unit-linked products. The strong performance of the Czech Republic (+16%) was due to buoyant sales of single premium products, while the development of regular premium products was flat. A similar trend can be seen in Hungary (+3.4%), where single premium business (unit-linked as well as endow-ment products) compensated for falling premium volumes for all other product types. Premiums continued to decline in Romania, where the economy has yet to recover.

While the life sector continues its recovery, a quick return to pre-crisis growth is unlikely, since the economic situation will improve only gradually given the severe recession in 2009 and the high levels of household debt in many countries. Further-more, recent growth has been driven primarily by pure savings products with short durations, while sales of risk products continued to be sluggish or fell. One of the main challenges going forward will therefore be supporting sales of more risk-based products. In the European Union countries, the introduction of Solvency II is one of the key challenges.

Non-life insuranceNon-life insurance premiums fell 2.1% in Central and Eastern Europe to USD 68bn in 2010 (2009: 6.9%). The decline was broadly based and Poland was the only major country to report growth (+3.4%). However, these figures are likely to underestimate the demand for insurance in the regions EU member states. An increasing share of the business sold in these countries is no longer captured in the national statistics, as it is written under the Freedom to Provide Service (FPS) agreement. Still, the weak perform-ance is not surprising, given the sluggish improvement of the general economic situation in most countries, with investment activity and private consumption still mostly weak or declining. This is also reflected in the at growth by line of business. In Russia, the largest non-life insurance market in the region, premiums declined by 1.1% due to weak property, motor own damage and (non-risk bearing) compulsory medical business, while voluntary accident & health expanded at double-digit rates. Growth in Poland was driven mainly by property, while motor own damage continued to decline and motor third party liability grew slightly. Premiums continued to decline in the other major markets in the region, such as Hungary (6.8%), the Czech Republic (5.1%) and Romania (13%). Premiums in the Baltic States (5.8%) continued to decline as well, but this can still be considered an improvement compared to the previous year (34%). Central and Eastern Europe experienced a number of severe natural hazard events eg the heat waves and wildfires in Russia and floods, particularly in Poland, which resulted in large insured losses and drove up loss ratios in property.

For as long as the general economic environment is not expected to return to its pre-crisis state, it will continue to improve. Domestic demand should become more broadly based with private consumption and investments in the region also expected to grow, supporting growth of related business lines, such as engineering or motor insurance. In some markets, most notably Poland, there are signs of rate improve-ments in motor, but in the other new EU member countries, competition in the seg-ment is likely to remain fierce. While most countries in the region are not exposed to major natural hazards, such as earthquakes and wind storms, the recent flood events have nevertheless raised awareness about natural hazards and how insurance can counter their negative financial consequences.

Premium growth resumed, but was mainly due to the performance of the savings business.

Growth continued, but was below pre-crisis levels.

Non-life premiums continued to contract in 2010.

Premiums in 2010 in Central and Eastern Europe World USD bn market shareLife 20 0.8%Non-life 68 3.7%

Real premium growth


4%

2%

0%

2%

4%

6%

8%

10%

Life Life excl. Russia Non-life

25


The Middle East, Central Asia & Turkey: recovery in 2010, uncertain outlook amid political uncertainties

Life insuranceThe life insurance market in the region continued to witness strong growth with premiums increasing by 12% to USD 4bn in 2010; the annualised growth for the period 200009 was 9.4%. Turkey, which accounted for 36% of the regions life premiums, registered premium growth of 11%, well above the average annualised growth of 3.6% from 2000 to 2009. In the oil-exporting countries of Saudi Arabia and UAE, the rise in popularity of takaful insurance spurred the growth of life premiums, which grew by 21% and 4.1% respectively in 2010.

In the medium and long term, the outlook for life insurance is generally positive in the region. Life insurance penetration is still very low. Islamic insurance and efforts to increase insurance awareness should play an important role in the future. It is expected that pension reforms in the regional markets, the restructuring of existing schemes and the reduced role of governments in pension systems will boost demand for long-term savings products. Changing demographics driven by the growing numbers of indivi-duals of working age along with strong economic growth prospects will provide strong support for the life insurance market.

Non-life insuranceThe non-life insurance markets in the Middle East, Central Asia and Turkey recovered strongly with premiums growing by 7.3% to USD 27bn in 2010. This was primarily driven by improving macroeconomic conditions; the aggregate real GDP of the regional markets grew by 4.7% in 2010 versus 3.4% in 2009.

Turkey, the largest non-life insurance market in the Middle East region, accounted for approximately 28% of the total direct premiums in 2010. After registering a decline in real premiums of 3.8% and 2.1% in 2008 and 2009 respectively on the back of weak external demand and competitive pricing the non-life insurance industry in Turkey rebounded in 2010, registering a growth rate of 3.6%. Non-life premium growth was strong in the oil-exporting countries of Saudi Arabia (+14%), Jordan (+7.7%) and the UAE (+7.2%). The health segment is increasingly gaining significance in the region as the governments introduce laws requiring compulsory health coverage. Strong infrastructural development and expansion in hydrocarbon facilities, particularly in the oil-exporting countries, have helped stimulate demand for commercial insurance lines such as property and engineering. The political turmoil in the Middle East is creating uncertainty for the economic growth outlook of the region in the short term. Sectors such as tourism, manufacturing, construction, trade and banking are particularly affected. The negative impact will most likely affect the growth prospects of non-life insurance in the markets of Egypt, Libya, Syria and Yemen. However, it is unlikely that the situation will severely dent the long-term fundamentals for economic and insurance growth in the region. Premium growth will also be supported by personal lines, such as motor and health, which will become compulsory.

The figures in this section exclude Israel, which belongs to the group of industrialised countries.

In 2010, life premiums grew strongly in Turkey and oil-exporting countries.

Increasing insurance awareness and popularity of Islamic insurance will support growth in life premiums.

Non-life premiums recovered strongly on the back of improving macroeconomic conditions.

Compulsory insurance lines and infrastructural developments drove premium growth in the oil-exporting countries.

The growth outlook in 2011 will be affected by political uncertainties; long-term growth fun-damentals remain intact.

Premiums in 2010 in emerging Middle East countries, Central Asia & Turkey10 World USD bn market shareLife 4 0.2%Non-life 27 1.5%

Real premium growth


0%

2%

4%

6%

8%

10%

12%

Life Non-life

26



Africa: life premiums decline, non-life grows

Life insurance Life insurance premiums in Africa fell by 2.4% to USD 47bn in 2010, after having increased by 1.7% in 2009. South Africa is the dominant market, accounting for more than 90% of regional life premium volume. Premium income in South Africa fell by 2.1% in 2010 (2009: +1.7%). Sales of compulsory annuities were adversely affected by lower interest rates, which resulted in lower annuity rates. However, there was solid growth in the large private pensions market and in investment products. Premiums in Egypt, the third largest market, although still relatively small compared to South Africa, shrank by 18%. Recent data is unavailable for the other countries in the region. A number of takaful companies have set up operations in Egypt as well as in other African countries. This is likely to increase the appeal of life insurance to the continent's significant Muslim population.

Life insurance in the region is likely to experience growth in the medium term as the economic recovery gains momentum.

Non-life insuranceAccording to the limited information available, non-life premiums in Africa rose 4.1% to USD 19bn (2009: +3.8%). South Africa, which accounted for half of the regional non-life premium volume, grew by 4.2%. Non-life premium income continued to decline in Egypt (2.6%), but increased in Namibia (+10%). Recent data is not available for other countries in the region.

Due to rising commodity prices, the African economies performed relatively well in the global economic crisis and the expansion should continue. The non-life insurance market should benefit accordingly.

The South African life industry was impacted by lower sales of annuities.

According to available information, growth increased in 2010.

Premiums in 2010 in Africa World USD bn market shareLife 47 1.9%Non-life 19 1.1%

Real premium growth


4%

2%

0%

2%

4%

6%

8%

Life Non-life

27


This 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.

The study examines non-life and life premium volume in 147 countries. The statistical appendix provides detailed information on the largest 88 countries, measured by total insurance premium volume.

The insurance data (and estimates where data was not yet available) contained in the study originates primarily from national supervisory authorities and, in some cases, from insurance associations. The macroeconomic data was sourced from the Interna-tional Financial Statistics of the International Monetary Fund (IMF), Oxford Economics, the Economist Intelligence Unit (EIU) and the Wiener Institut fr internationale Wirt-schaftsvergleiche (WIIW).

Figures for previous years are adjusted as new information becomes available. An update of sigma's world insurance tables will be posted online in December 2011 (at www.swissre.com/sigma). Compared to the December 2010 update, world premi-ums for 2009 have been revised by 0.3% or USD 8.1bn in life insurance and by 0.01% or USD 0.2bn in non-life insurance. Compared to the last edition (sigma No 2/2010), the revision was 1.5% for life premiums and 0.4% for non-life premiums.

This report is based on information concerning the premiums written for direct business by all registered insurers. This means:1. Direct insurance premiums, including commissions and other charges,

are considered prior to cession to a reinsurance company.2. Domestic insurers regardless of their ownership and domestic branches

of foreign insurers are regarded as domestically domiciled business units. By contrast, business undertaken by the foreign branches of domestic insurers is not regarded as domestic business.

3. Business that has been written in the domestic market includes premiums for cover of domestic risks as well as those covering foreign risks, as long as they are written by domestic insurers (cross-border business).

Life and non-life business areas are categorised in this study according to standard EU and OECD conventions. This means that health insurance is counted as part of non-life insurance, even if these lines are classified differently in the individual countries.

Unless stated otherwise, all premium growth rates in the text indicate changes in real terms. These real growth rates are calculated using premiums in local currencies and adjusted for inflation using the consumer price index for each country. In addition to the real growth rate, the statistical appendix provides the nominal change in growth for each country. Regional aggregated growth rates were calculated using the previous year's premium volumes, which were converted into USD at market exchange rates. The same procedure was used for the economic aggregates of Table X, for which the previous year's nominal GDPs in USD were used as weights.

It should be noted that both the insurance and macroeconomic data listed in this study may deviate from the 2008 and 2009 figures published in earlier World Insurance sigmas. These discrepancies are due to statistical adjustments or the use of better sources.

Basis: direct premium income in 147 countries

Data sources

Data revisions

Definition of premium income

Health insurance allocated to non-life business

Growth rates in local currency are adjusted for inflation.

Methodology and data

28


Using the average exchange rate for the financial year, premium volumes are converted into USD to facilitate comparisons between the different markets and regions. Where no premium data is available (indicated by na for the local currency value), the premi-um income in USD is estimated based on the assumption that the ratio of insurance premiums to GDP remained constant (ie constant insurance penetration). Regional growth rates are calculated using a weighted average of the real growth rates of the individual countries. The weighting is based on the relevant premiums of the previous year, in USD.

The statistical appendix contains additional calculations as well as the macroeconomic data used for currency conversions. Alongside real growth rates, the changes are also shown at current prices (nominal growth rates) in both the local currency and in USD.

Only premium income from domestic risks is used to calculate insurance penetration and density. Cross-border business is not included. This has a significant effect in Lux-embourg, Italy and Ireland.

The sigma editorial team would like to thank the supervisory authorities, associations and companies that helped with data compilation.

In Egypt, India, Iran, Japan, South Korea and Malaysia, the financial year is not the same as the calendar year. Precise details about the differences in dates are given in the notes to the statistical appendix.

The use of US dollar figures facilitates international comparisons.

Density and penetration do not include cross-border business.

Acknowledgement

Methodology and data

29


Statistical appendix

Premium data on countries and regions is now available electronically at the following prices:

Update 20002010 19952010 19802010 per package

Life insurance CHF 1500 CHF 2100 CHF 3750 CHF 500 USD 1760 USD 2470 USD 4410 USD 590 EUR 1220 EUR 1710 EUR 3050 EUR 410 Non-life insurance CHF 1500 CHF 2100 CHF 3750 CHF 500 USD 1760 USD 2470 USD 4410 USD 590 EUR 1220 EUR 1710 EUR 3050 EUR 410 Total premium volume (non-life and life) CHF 3000 CHF 4200 CHF 7500 CHF 1000 USD 3520 USD 4940 USD 8820 USD 1180 EUR 2440 EUR 3420 EUR 6100 EUR 820

Further information and order forms can be accessed under Dataselling at www.swissre.com/sigma/data_selling.html

Insurance figures for the period 20082010 are available free of charge on the sigma portal of the Swiss Re website at www.swissre.com/sigma

30


Legend for Tables I to X

1 Excluding cross-border business 2 Excludes industrialised countries in South and East Asia (Hong Kong, Singapore, South Korea,

and Taiwan) 3 Insurance penetration (premiums as a percentage of GDP) and density (premiums per capita) include

cross-border business 4 North America, Western Europe (excluding Turkey), Japan, Hong Kong, Singapore, South Korea, Taiwan

(counted as an emerging market in earlier editions), Oceania, Israel 5 Latin America, Central and Eastern Europe, South and East Asia, the Middle East (excluding Israel) and

sigma re insurance report 2010

Documents

sigma edition

sigma series

swiss res website

swiss res position

source reference swiss

updated information

growth capital increases

positive growth