Oliver Futterknecht, co-author of the new sigma study, said: “Due to their size, industrialised countries are in absolute terms still the main insurance premium contributors, but emerging markets are catching up fast.”

In 2010, for example, industrialised economies contributed $120bn in additional premiums in nominal terms, with emerging markets following closely with $109bn.

So-called Emerging Asia and Latin America contributed the most to emerging market premium growth in the past ten years, according to Swiss Re.

It said that many factors have driven this premium growth, including a ‘sound’ economic environment, improvements in insurance regulations, product innovation, and a leveraging of multiple distribution channels.

“The healthy economic environment with low inflation has had a positive effect on insurance premium growth in Emerging Asia and Latin America,” said Mr Futterknecht.

He also pointed out that certain markets have reduced state involvement and taken ‘insurance-enabling regulatory measures’ to try and encourage healthy competition.

Product innovation has also driven fast-paced growth in certain insurance segments, including microinsurance and takaful, stated Swiss Re.

And, the use of multiple distribution channels has also helped insurance to reach a broader audience in emerging markets, added the reinsurer.

The concept of bancassurance, for example, that was virtually non-existent before 2000 in such markets, has gained importance in many countries, especially for the distribution of life insurance.

The rapid growth of this approach has been driven mainly by regulatory reforms in key emerging markets including China and India, stated Swiss Re.

Amit Kalra, the other co-author of the sigma study, said: “In India, bancassurance premiums made up 22% of new business premiums for private sector players in 2010. With a growing middle class and over 70,000 bank branches, bancassurance in India has plenty of room to expand.”

But while insurers in emerging markets have seen ‘stellar’ premium expansion, achieving profitable growth is far from the norm, pointed out Swiss Re.

“For example, out of around 174 life insurers from a sample of Emerging Asian and Latin American markets, 46% of insurers failed to report consistent profits between 2006 and 2009, and only 20% registered profit margins (net profits divided by direct premiums) in excess of 10%,” it explained.

Swiss Re estimates that, in non-life markets, 49% of all sampled non-life insurers in the emerging markets recorded negative underwriting margins (underwriting results divided by direct premiums), with around 36% of non-life insurers reporting margins in the range of 0% to 10%.

The low level of profitability may indicate an ‘overly aggressive’ focus by insurers on top-line growth rather than profitable growth, suggested Swiss Re.

Mr Kalra said: “In the life sector, domestic insurers and foreign branches and subsidiaries generally achieve better profitability than joint ventures. The success of domestic life insurers could be due to their large distribution networks, their local market expertise, and possibly lower costs resulting from economies of scale.

“In comparison, many joint ventures have only a short operational history and are still incurring heavy start-up costs. The picture in the non-life sector is less certain, as there are no apparent differences among insurers of different ownership structures.”

Over the next decade, more than half the growth of the global economy is expected to come from emerging markets.

For this reason, non-life insurance premiums in emerging markets are expected to grow more than twice as fast as in industrialised countries.

Life premiums are also expected to outpace those in industrialised countries, pointed out Swiss Re.

Not surprisingly, despite strong competition from domestic insurers, many international insurers plan to actively pursue opportunities in the rapidly growing emerging markets. Banks are also likely to use their branch networks to further penetrate these markets, said Swiss Re.

But with interest rates expected to remain at low levels for an extended period of time in both developed and emerging markets, insurers will find it increasingly difficult to achieve profitable growth and Swiss Re therefore advises a more ‘disciplined’ underwriting approach.

“Going forward, insurers will need to place great importance on professional and disciplined underwriting to benefit from the healthy growth outlook in emerging markets and operate on a sustainable basis. Capital management will also be vital to support growth and comply with tightening solvency requirements,” said Mr Kalra.

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