Industry Outlook for the Insurance Market (2Q-2021)

Author: MAPFRE Economics

Summary of the report’s conclusions:
MAPFRE Economics
2021 Economic and industry outlook: second quarter perspectives
Madrid, Fundación MAPFRE, April 2021

In the wake of the severe economic downturn caused by the pandemic, the outlook for both the insurance industry and the economy in general is improving thanks to a return to global economic growth in 2021 and reduced uncertainty due to progress in vaccination. However, recovery is increasingly uneven. In many emerging countries, the pace of vaccination remains slow, with fiscal leeway virtually exhausted and an increasing inflation rate, which—in some cases—is forcing a reversal of the accommodative monetary policies that were being pursued, delaying the recovery process of their economies and the development of their insurance business, especially those lines of business more linked to trends in the economic cycle.

The rapid intervention of central banks with their ultra-accommodative monetary policies and extensive fiscal aid packages, in those economies with sufficient fiscal and monetary leeway to continue to implement them, is unprecedented and these continue to support financial markets, governments, households and businesses in a way that was not possible in previous economic crises. As a result of this, the larger economic declines initially forecast have been avoided, while investment and consumption levels continue to recover and major economies are beginning to regain confidence. Insurance markets, for their part, have benefited from these measures and continue to show themselves to be solvent and resilient, with less pronounced declines in business levels compared to previous global crises. Nonetheless, insurance market profitability may be negatively impacted by an increase in loss experience in some segments, such as Life Protection, health, and business interruption insurance, as well as reinsurance. This may put pressure on the prices of these coverages.

Further, the first quarter of 2021 saw a generalized upswing in market risk-free interest rates globally, with a steeper gradient being observed in interest rate curves (as can be seen in the graphs produced by EIOPA [the European Insurance and Occupational Pensions Authority]). This has created an improved environment for Life savings and annuity insurance products in some markets (principally emerging), with the ability to offer guaranteed rates in the medium- to long-term that are higher than short-term rates (term premium). However, interest rates in the eurozone remain low, despite the rebound in the first quarter (see Chart 1), and this is expected to remain the case for a long time. In the United States, the rebound was greater (see Chart 2) as a result of inflation data, which are increasing uncertainty about the direction that interest rates will take as a result of decisions the Fed may make in the coming quarters, which in turn will depend on whether or not inflationary pressures and labor market trends persist. It should be noted that Life investment insurance products are common in the US insurance market, and these are more closely linked to the performance of the stock markets, which continue to perform well, although they are also subject to greater uncertainty because of the effect that tapering could have on stock prices.

Among emerging countries, despite the pandemic, the Turkish insurance market performed better in 2020, in line with the good performance of its economy that was among the few in the world to experience slight growth in that year (1.6%) and for which economic growth prospects for 2021 are good (5.2%). Insurance markets in Mexico and Brazil, for their part, saw premiums fall in real terms, according to data at the close of the previous year. Prospects for partial recovery of their economies in 2021 may also help their insurance industries to recover. In addition, the rebound in market risk-free interest rates has improved the environment for Life savings and annuity insurance products in the latter two markets (see Charts 3 and 4).

In Spain, economic growth for 2021 is forecast to be around 6%, after an estimated fall in 2020 of 10.8%, one of the largest in the world due to the productive structure of the Spanish economy, which was hit particularly hard by the effects that restrictions on mobility had on consumption, trade, hospitality and tourism-related businesses. Recovery in 2021 will depend largely on the rate of vaccination, which has been accelerating in recent weeks, allowing for a relaxation of measures set in place as a result of further outbreaks.

The impact of the crisis on employment, trade and solvency of households and businesses continues to feed through to the insurance market unevenly across lines of business. With the latest data from ICEA (Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones — the research arm of the Spanish insurance industry) for the first quarter of 2021, growth in Non-Life premiums appears to be recovering year-on-year, at around 1.9% at an aggregate level compared to premiums for the first four months of 2020 (compared to growth of 1.1% in 2020 for the whole year). The health insurance line shows growth of around 4.4% (5.1% in 2020), and multirisk continues to show great resilience both for homeowners with 4.4% (2.7% in 2020) and for condominium with 2.7% (2.8% in 2020). The Non-Life business is particularly suffering in the Automobiles line, with a fall in the first four months of 2021 of -1.2% (-2% in 2020). Other smaller lines that continue to be strongly impacted by the crisis were travel assistance insurance and, to a lesser extent, trade multirisk.

Life business premiums have grown 4.9% year-on-year in the first four months of the year (compared to the drop of 20.7% in 2020, for the whole year), with recovery of both Life savings insurance premiums with growth of 5.6% (-25.0% in 2020) and Life Protection insurance premiums with growth of 1.9% (-0.4% in 2020). In addition, it is worth noting that, despite the fall in business in 2020, savings managed through Life insurance did not decline and even showed slight growth at the end of the first quarter of 2021, reaching 194.9 billion euros (compared to 192.1 billion at the end of the same quarter of the previous year).

Full analysis of the economic and industry perspectives with additional information and interactive charts on the eurozone, Germany, Italy, Spain, the United Kingdom, the United States, Brazil, Mexico, Argentina, Turkey, Japan, China and the Philippines can be found in the report titled “2021 Economic and industry outlook: second quarter perspectives,” compiled by MAPFRE Economics and available at the following link:

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