All markets in advanced Asia reported non-life premium growth increases in 2019, according to Swiss Re Institute.
However, the deep recession currently unfolding globally will leave its mark on demand for non-life insurance in the Asia Pacific region with premiums forecast to decline by more than 2%. Firmer rates in Japan and Australia, though, will cushion the blow, says the institute’s “Sigma extra 4/2020 World Insurance: Regional review 2019, and outlook” report released yesterday.
The advanced markets in Asia Pacific are Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea and Taiwan.
In Japan, Swiss Re Institute forecasts that non-life premium growth will contract by 3% in 2020, after an average increase of around 4% over the past two years. The COVID-19 induced economic recession, VAT hike in late 2019, and the postponement of the Summer Olympics will be key factors. The negative effect of these will be partially offset by rate hardening after recent typhoon losses.
Eisewhere in advanced Asia Pacific, Hong Kong and Singapore will likely see a sharp reduction in non-life premium growth. The recession-induced slump in demand is expected to be less severe in South Korea and Taiwan.
The sigma report notes that non-life profits were hit by a series of natural disaster losses in 2019, particularly in Australia and Japan. In Australia, the bushfires ravaging the country since late 2019 may have dealt the industry its first underwriting loss since 2011, though some of the claims may be filed only in 2020. In Japan, insurers faced increased claims resulting from Typhoons Faxai and Hagibis.
Firmer rates in Japan and Australia could help underwriting profitability but are unlikely to be enough to offset the drag from weakening investment results in view of lower yields and equity valuations, says the report.
With economic recession projected for most markets in advanced Asia-Pacific, Swiss Re Institute forecasts that life premiums will shrink by around 4% in 2020. A subsequent recovery in 2021 will not fully offset the drop. Unlike in emerging Asia where rising risk awareness is a strong supportive factor, economic constraints and negative wealth effects are more important for advanced markets given already high awareness and penetration rates.
Life sector’s profits
Life insurance profitability will remain under pressure because of low interest rates. In Australia, the life insurance sector reported a loss of $174m in
2019 and there are as yet no catalysts for a sustained improvement. The updates to Japan’s standard mortality table in April 2018 have also resulted in narrower mortality margins and lower core profits for life insurers.