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Number 8

Industry outlook for the insurance market (4Q-2021)

Author: MAPFRE Economics

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

The outlook for the insurance markets worldwide continues to follow a trend towards recovery, in line with the return of economic growth that will take global GDP in 2021 above pre-pandemic levels. This is supported by strong growth in the USA (due to the significant fiscal and monetary stimulus packages implemented) and in Asian countries with developing and emerging economies. The predictions for Latin America are also improving, given the strong performance shown by some of the region’s largest economies, and this is having a favorable impact on the primary markets for its insurance industry. However, there are signs of a loss in growth momentum, and many economies will have to wait until at least 2022 before regaining the pre-pandemic levels. This means that their insurance markets could experience an uneven recovery, and one that takes longer to emerge.

Inflationary pressures that many countries are facing due to bottlenecks in the supply chain (which is still unable to keep up with rising demand due to the reopening of the economy) and the sharp rise in energy prices may negatively impact insurance companies’ profitability, putting pressure, in turn, on insurance prices. The central banks in many countries have announced or are starting to consider a gradual withdrawal of their ultra-lax monetary policy measures in the face of rising inflation and improving economic conditions. This has been reflected in the risk-free interest rate curves produced by the European Insurance and Occupational Pensions Authority (EIOPA).

Thus, in the Eurozone interest rate curve (see Chart 1), a slight increase can be seen in all parts of the curve. This is also the case in the United States (see Chart 2), although in the shorter maturities, they remain well below the highs reached the previous year, an indication that broad monetary stimulus continues there. However, a slight rise in rates can also be seen in the middle and long parts of the curve, which are clearly above the highs of the previous year, gaining some slope. In any case, the interest rate environment remains unfavorable for the sale of savings products due to low short-term interest rates and expectations that further increases may occur that affect all parts of the curve. However, the stock markets have performed better during the current crisis, favoring the development of the life insurance investment business, especially in the United States, where these types of products are more common.

Now that the extreme uncertainty generated by economic operators’ movement towards cash positions during the acute phases of the pandemic has been overcome, the life insurance business is being favored by households and companies’ increased appetite for protection against the risk of death. It is also being boosted by financial products that allow them to hedge against inflation and obtain a return on their savings, which encourages the development of life insurance products in which the policyholder assumes the investment risk. The strong performance of the major equity market indexes worldwide is contributing to their development.

At the same time, some emerging countries have already had to withdraw some of the economic support measures they had implemented. In some cases, there has even been a shift towards a restrictive monetary policy, with sharp rises in interest rates to counter inflation that has proven to be more persistent than expected while also substantially exceeding inflation targets, such as in Brazil and Mexico (see Charts 3 and 4). These rate increases are generating a more favorable environment for development of the Life line of business, for savings products and traditional lifetime annuities. In this sense, the Life insurance markets in Brazil and Mexico are experiencing significant growth in business volume, which is also influenced by stronger demand for protection against the risk of death and illness as a result of the pandemic.

In Spain, the insurance industry continues to show significant growth, for both Life and Non-life products. However, for life insurance, the basic effects of the pandemic are quite notable, with pre-crisis figures still seeming a long way off. Equities are beginning to be seen as an alternative form of protection against an environment of low interest rates and rising inflation, and this is encouraging development of life insurance products where the policyholder assumes the investment risk. Products of this type are gaining importance, with a wide range of offerings now being launched onto the market. For the Non-life segment, the pre-crisis levels were never lost, and it is now showing significant year-on-year growth as economic recovery continues (except for some specific lines of business).

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 entitled 2021 Economic and industry outlook: fourth quarter perspectives, compiled by MAPFRE Economics and available at the following link:

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