Despite recent slowdowns, emerging economies are expected to outperform advanced markets over the next five years, according to a report published by JLT Re.

The emerging economies examined in the JLT Re study are also expected to gain an increasing share of the global non-life insurance market as insurance penetration and insurance density levels rise.

Indeed, emerging markets are, in aggregate, projected to account for close to 45 percent of the world economy in the next five years, said the JLT Viewpoint report titled “Emerging Markets: Moving Ahead.”

“This translates into significant opportunities for risk transfer as prospects for re/insurers in emerging market are closely tied to the future development of their respective economies,” the report added.

In its study, JLT Re focused on seven key markets in emerging Asia, Latin America and sub-Saharan Africa: China, India, Thailand, Brazil, Mexico, Kenya and South Africa.

“While it is true that some emerging markets have suffered downturns since 2014, projected economic forecasts over the next five years remain encouraging and overall, emerging market economies are expected to expand by more than 4 percent in 2016, which would represent the first acceleration in growth since 2010,” said David Flandro, global head of Analytics, JLT Re.

“Of course, not every emerging economy will flourish, but emerging markets, in aggregate, will be growing at between two and three times the pace of developed markets in this time,” he said, noting that this “new world order” presents a huge business opportunity for the industry.

“Our research has compared recent and forecasted GDP growth rates for these seven emerging markets with projections for advanced economies. India, Kenya and China are the standout future performers, with GDP expected to grow at three to four times the rate of developed countries over the next five years,” Flandro said.

“Our analysis shows that emerging markets are, on average, likely to outperform key advanced countries (including the United States, Japan, Germany and France) in the next five years,” said Stuart Beatty, CEO, JLT Re Asia Pacific.

“This expected strong performance represents an important shift in momentum, driven by a faster insurance penetration rate compared to mature markets and a renewed recognition that, despite on-going challenges, emerging markets are crucial in driving long-term insurance sector growth as carriers seek new and profitable revenue streams,” Beatty added.

Flandro cautioned, however that expert, local knowledge is necessary for successful competition in emerging markets.

“[C]arriers looking to expand into emerging territories in search of new and profitable revenue streams must carefully plan entry strategies designed for the unique characteristics of each market,” the report said, noting that risk selection, portfolio management and access to reinsurance capital are crucial.

“Insights into competition levels, risk exposures and future growth potential can provide early-mover advantages,” the report went on to say.

Source: JLT Re

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