ANNUAL REPORT 2007-08
i) World Insurance Scenario
The macroeconomic environment in 2007 across the globe was characterized by marginally slower economic growth and rising inflation driven by a steep increase in food and energy prices. Key interest rates diverged, but were generally low. Though strong at the end of 2007, stock markets fell in early 2008. In this backdrop worldwide insurance premium amounted to US Dollar 4061 billion in 2007 as against US Dollar 3723 billion in 2006. Of the total premium, life insurance premium amounted to US Dollar 2393 billion and the remaining US Dollar 1668 billion by general insurance business. At this level, the global total premium increased by 3.3 per cent in
real terms in 2007 compared to 5.0 per cent in 2006.
The growth in life insurance premium was about 5.4 per cent. While the premium grew by 4.7 per cent in industrialized countries, it grew by 13.1 per cent in emerging market economies. The continued expansion of life insurance business in industrialized countries was through pension and annuities products driven by an aging population and reductions in state social security benefits. In the case of emerging economies, strong economic growth, relatively young population and an expanding middle class contributed to higher insurance sales. In emerging markets, the growth in life insurance was 13.1per cent during 2007 as against 21.1 per cent in 2006. The profitability of life business continued to improve in many countries as costs were cut, guaranteed interest rates were reduced and profit participations was adjusted to reflect the low interest rate environment.
The global non-life business grew by 0.7 per cent in 2007 as against 1.5 per cent in 2006. The global growth performance in non-life business varied between industrialized countries and emerging markets. While industrialized countries showed a negative growth of 0.3 per cent, the emerging markets exhibited a robust growth of 10.2 per cent in the non-life insurance business on account of strong economic developments and introduction of mandatory cover in areas such as motor, third party liability and health.
India and China reported strong performance in both life and non-life business. China reported 19 per cent of growth in its life-insurance premium and 20 per cent in non-life insurance
premium. Strong economic growth, consequent increase in household disposable income, penetration of insurance companies to uncovered markets, and introduction of compulsory motor third-party liability are the major contributing factors for the strong performance of Chinese insurance industry.
Life insurance business in India grew by 14.2 per cent in US Dollar terms, while non-life insurance business grew by 5.6 per cent. Introduction of new products and channels of distribution and penetration of private insurance companies in uncovered markets are the major contributing factors. However, profitability of insurance companies in the non-life business was affected due to detariffication and consequent reduction in premium rates.
The global outlook for 2008 remains grim for both life and non- life insurance business. While uncertainty in capital and stock market is likely to moderate, lower demand for unit-linked life insurance products, slow down in economic activities are expected to dampen the premium growth in non-life market. As such 2008 will be a challenging year for non-life insurance given the soft market. With sustained pressure on rates and slowdown in economic activity, premium growth in the non- life market at best is expected to stagnate. In the industrialized economies, premiums are expected to decline, while in the emerging economies, growth is expected to slow. Underwriting results (profits/losses) are expected to deteriorate further. A strong rise in inflation would have a severe, negative impact on the technical reserves of liability insurance and other long- tail business lines.
The outlook remains positive for life insurance in the medium term. As economic environment and capital markets are expected to stabilize in medium term, life insurance is projected to resume its strong performance. In the industrialized countries, the need for old-age provision will continue to fuel sales of pension and annuity products. In many emerging markets, the potential for significant market expansion in tandem with higher disposable income and a relatively young population, will drive sales for both savings and protection products in the years to come.