Economically, China is expected to outrank the United States in 2020. India and several other Asian countries will also move up the ranks. Insurers intend to profit from the burgeoning middle class that will result from this growth.
Asia will take up its natural role in the economy, commented Donald Guloien, Manulife Financial’s CEO during his presentation to the the 47th annual seminar of the International Insurance Society (IIS) held in Toronto from June 19 to 22. The Insurance and Investment Journal was there, as were 500 executives and specialists representing insurance companies from over 45 countries.

Mr. Guloien believes that Asia will count for 50% of the world’s gross domestic product (GDP) within a decade. The GDP measures the size of an economy.

From the fall of the Roman empire to the industrial revolution, Mr. Guloien pointed out that China and India accounted for more than half of the global economy. Afterwards, their power declined (See table p.31).

In a presentation at the same event, Norman Sorensen from the IIS considered data from the International Monetary Fund (IMF) that shows the Chinese economy will take the lead over the United States by 2020. According to the IMF’s information, the Chinese economy will grow to $24.6 trillion dollars in nine years, while that of the United States will reach $23.3 trillion (See table below).

Mr. Sorensen says that the gap will increase further by 2030. The Chinese economy will reach $73.5 trillion while the United States will only be $38.2 trillion. The results from 2010, when the American economy reached $14.6 trillion and China’s was $5.9 trillion, will be just a faint memory.

Canadian insurers believe that they are well positioned to profit from these changes. Manulife, for example, drew a third of its operating profits from Asia, a total of $719 million. The two other thirds came from Canada and the United States.

New growth area

Like the other participants in the global leadership discussion panel, Donald Guloien believes that the expanding middle class in Asia will result in increased life insurance sales. A new growth area is taking shape for insurers who have been accustomed to a mature western market that is focused on wealth management.

Asian countries like Indonesia, Singapore, Malaysia, Vietnam, and Thailand will also see significant economic and demographic growth, says Mr. Guloien, noting that India, Vietnam and Indonesia alone have 1.5 billion inhabitants. “With a large population and low insurance penetration in emerging territories, Asia will be a growth engine for the 21st century,” he adds. Mr. Guloien believes that these countries have strong economies and rapidly expanding middle classes. The Asian life insurance business will grow at a rate of about 10% a year.

When the head of Manulife thinks about Asia, he is thinking of China in particular. Mr. Guloien also shared some thoughts about India’s potential. “India is experiencing quick growth, but insurance and mutual fund regulation has been extremely volatile,” he says. He believes that India will be more appealing once stability has returned.

Another panelist, Madhuswamy Ramadoss, is the CEO of the New India Assurance Company, a property and casualty insurer founded in 1919. If India is trailing China, he says it is because it began its economic and regulatory reforms after its main neighbor (in 1991 rather than in 1978).

The head of New India points out that his country will lead the “BRIC” in terms of GDP growth, the BRIC being an acronym representing the emerging nations of Brazil, Russia, India and China. He believes that India currently ranks 8th in the world in terms of GDP. In 2015, it will be fourth, he suggests. The country’s GDP has grown by 7% to 9% annually for the last five years.

Mr. Ramadoss thinks that his nation’s economy is well positioned to profit from growth in both life and general insurance. In fact, he says that India’s economy is more heavily based on services than China’s.

Mr. Ramadoss also believes that the property and casualty industry will grow alongside the middle class. “P&C premiums will grow five or six times by 2020. It will be large volume but low ticket size. We expect the number of claims to rise,” he comments.

Insurance has come a long way in India, according to figures from the Indian Regulatory and Development Authority. In general insurance, the number of players has increased from just four in 2000 to 22 in 2010. As for premium revenue in this sector, it has gone from $2 billion to $8 billion during the same period. The increase is even more marked in life insurance, where during this period the number of companies increased from one to 23 and premiums increased from $6.2 billion to $57.8 billion. Madhuswamy Ramadoss estimates that the property and casualty business will see growth ranging between 17% and 19% over the next ten years. He believes, however, that insurers should improve their profitability.

Insurers may have come through the crisis weakened and glimmers of uncertainty remain, but Norman Sorensen believes that they have emerged from the crisis stronger. “After the crisis, insurance is now a larger part of the global financial sector. Insurance has 14% of this; it was 12% only two years ago,” comments Mr. Sorensen.

Insurers hold $16 trillion of the $114 trillion world capital markets. The banks hold $80 trillion. The global investment market totals $178 trillion, of which $61 trillion is banking deposits. As for the private debt market, it accounts for $51 trillion, while the equity market accounts for $34 trillion.

“Insurance is a major player in the global private debt and equity sectors. We are the true long-term lenders,” comments Mr. Sorenson. The private debt market is growing annually by 4% to 6%, while the private equity market is growing at a rate of 6% to 8% (See figure above).