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Industry-specific environment
For the international (re)insurance industry the omens were virtually unchanged: the general environment continued to be highly challenging in 2016. In view of the protracted low level of interest rates, the focus remained firmly on preserving the value of investments and generating stable returns.
The year under review was also one of new developments on the regulatory side for the insurance industry. In Europe harmonised insurance supervisory law was successfully implemented in the form of Solvency II. Reflecting an integrated approach to risk, these refined solvency requirements for insurers put in place new measurement principles for assets and liabilities, which are to be recognised at their fair values in future. In China, too, a new risk-based solvency regime (C-ROSS) came into effect at the beginning of the year; it is intended to promote domestic reinsurance placement. The planned launch of a new solvency system in South Africa, known as Solvency Assessment and Management (SAM), was postponed until mid-2017.
The Indian insurance market similarly witnessed some regulatory adjustments: at the end of 2016, for example, the local insurance regulator gave its approval to a small number of foreign reinsurers to establish branches, thereby opening up the growing Indian reinsurance market to international players.
The digital revolution was once again a major preoccupation for the insurance industry in 2016. This can be attributed in part to the cost pressure on primary insurers, which was driven above all by the protracted low level of interest rates and by the competitive environment. For insurers, then, the focus was not only on the development of new products, the optimisation of business processes or innovative impetus in the areas of customer care and acquisition; there was also an industry-wide trend towards participation in and cooperation with start-ups and insurtechs. The (re)insurance industry also leveraged digitisation in the year just ended to optimise its point-of-sale systems and structure internal value-added chains even more efficiently. This trend looks set to continue in the coming years.
In property and casualty reinsurance the pressure of competition remained high in 2016. This was due in part to the healthy capital resources enjoyed by primary insurers, which enabled them to carry high retentions. Another factor was the continued inflow of capital from the ILS sector into the reinsurance market, as a consequence of which the supply of capacity in the market comfortably outstripped demand – hence again putting prices and conditions under pressure in 2016. The burden of major losses was thoroughly moderate in the year under review, as it had been in prior years. However, a number of severe earthquakes and windstorm events led to the heaviest losses from natural catastrophe events in four years.
Against the backdrop of advancing digitisation, demand increased in the year under review for covers to protect against cyber risks. While the vast bulk of the worldwide insurance premium was generated in the United States, growing interest could also be discerned in Europe as the year progressed.
The sustained low interest rate environment similarly had implications for life and health reinsurance in the area of traditional life insurance products, which have now not only lost a considerable part of their appeal but have also to some extent been supplanted by new policies which have been adapted to the changed interest rate situation. Furthermore, in the context of the new Solvency II regulations, many European insurers were compelled to grapple with increased capital requirements – primarily in relation to longevity business. As the year progressed, therefore, a growing demand for reinsurance was observed. This is also true of the Eastern European market, which is similarly coming under more exacting regulatory requirements.
Demographic change is driving sustained demand for old-age provision products – on the reinsurance as well as the insurance side. Lifestyle products, which offer risk protection tailored to the policyholder’s specific life situation, also played a more prominent role. Policies under which the premium is linked to the insured’s health-related behaviour enjoyed a particularly brisk surge in demand in the year under review. Although the purchasers of such products have hitherto tended to be in Anglo-Saxon and Asian markets, a tangible interest in this trend can now also be detected in Europe.