Risks and rewards

12 October 2017

Risks and rewards

By Jennifer C. Rankin

Insurers everywhere are carefully monitoring developments in the global economy, regulatory oversight, promising markets, and more—then positioning themselves for success in an increasingly competitive world.

These are both promising and challenging times for life insurance companies around the world, which are coping with persistently low interest rates, sluggish economic growth, financial markets volatility, and increasingly rigorous regulations.

In the macroeconomic environment, the world economy moderately increased in 2016. According to the SwissRe Economic Research & Consulting report of 2017, real GDP grew by 2.5%. GDP advanced economies remained below the pre-financial crisis, but was slightly above the annual average of the past 10 years, growing steadily in some key markets such as India and China, and improving in Central and Eastern Europe (CEE), the major factors that have affected the viability of the life insurer were "Interest Rates and Investment Performance. Interest rates continue to be historically low. In England, Russia and Brazil interest rates have fallen. Another positive performance is investment performance, with stock market returns offsetting some of the effects of low interest rates on the insurer's profitability, recalling 8.6% of emerging markets and a 14.2% increase in the MSCI index 9.5% and S & P 500.

Profitability is a challenge for all regions. In North America, ROE was eight percent, Europe was nine percent, and Asia was seven to eight percent. "Government policy and governance have influenced performance in different countries and regions. An example is Solvency II (IIS), which came into force in Europe in 2016. This new regulation, which requires an insurer to assess the assets and liabilities of an insurer to ensure that it has a sufficient capital to support the business, it has been a significant change in regulations for insurers. Another example is the US Department of Labor's fiduciary rule, the ongoing uncertainty about the individual contract annuities and the insurers to assess. The third is the policy of the central bank, for example, the Bank of Japan has a negative interest rate policy, while the US has been reluctant to significantly raise interest rates. In the US, inflation has offset the modest nominal earnings of the In Western Europe, you contribute the United Kingdom was largely offset by Germany, where the premiums fell for a second year due to the weak sales of traditional savings, pensions and annuity products.


During the first quarter of 2017, Deloitte Global surveyed over 200 financial services directors around the world, including asset managers, insurers, and bankers - about these and other business issues. The results were quite interesting:

  • Information technology. Almost two-thirds of respondents believe that technology will have the biggest impact on the financial services industry over the next two years, such as blocking blocks and automating robotic processes
  • Changing the industry. More than half of respondents expect financial services to change significantly over the next five years, especially in Europe and Asia Pacific
  • Customer expectations. According to respondents, changing customer expectations is a key factor in changing the industry,
  • Regulation, geopolitical issues
  • Operating models. A quarter of respondents expect operating models to be among the top three areas of financial services affected by change.
  • Human Capital. Respondents believe that global experience will be an important need for talent, but is less appreciated in North America. Nearly half of insurers mentioned the ability to anticipate change as the most important need. Respondents in all sectors believe there will be talent shortages in the areas of innovation, product development and information technology.


The main factors that will influence life insurance

ComFrame. Currently, the International Association of Insurance Supervisory Authorities (IAIS) develops a group-wide supervision and regulation framework for active international insurance groups (IAIGs), including a capital standard. Final requirements are expected to be issued in 2018.

Insurance contracts. The International Accounting Standards Board (IASB) in the United Kingdom published the IFRS 17 standard. According to Deloitte, "IFRS 17 supersedes IFRS 4 Insurance Contracts and Related Interpretations and is applicable for periods beginning on or after 1 January 2021

ORSA. Insurers are facing growing regulatory pressures to improve their risk management practices. A major concept in the game is the Own Risk and Solvency Assessment (ORSA), which requires insurers to assess how much of their capital is subject to risk levels and to send written documents to regulatory authorities.

Solvency / RBC. Rigorous solvency requirements are being developed around the world. These include Solvency II in the European Union, the different risk-based capital (RBC) regulations and higher capital requirements in general. IAIS intends to develop a comprehensive risk-based insurance standard, full implementation to begin in 2019, after testing and reporting with insurance supervisors and IAIGs

Systemic importance. The largest insurers in the world are faced with the possibility to receive important financial institutions (SIFIs) and / or important global insurance names (G-SIIs), which implies increased regulation reporting and capital requirements. Several insurers have received these designations

Product sales. Europe is a good example of control that regulators give to sales practices. The annual living companies in the region have to comply with the Second Insurance Mediation Directive (IMD2), the Packaged Retail Investment Products (PRIPS) initiative and the Second MiFID2 (Markets in Financial Instruments Directive)

With all these factors and market regulations, SwissRe expects a worldwide increase in life premiums to be robust in the next few years, driven mainly by emerging markets. Growth will be positive in advanced markets, but will remain significantly lower than in emerging markets, so life insurance companies will need to be innovative and find solutions in favor of customers.


Source: LOMA – Resource Magazine, August 2017

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