Prudential Financial Inc (PRU), American International Group Inc (AIG): The Outlook for the Global Insurance Market Is Starting to Pick Up

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According to Munich RE, the primary insurance market is finally recovering from 2008 despite the slow economic recovery throughout the world.

Within the insurance giants’ short term insurance market outlook published this month, it was noted that the volume of primary insurance premiums written is expected to grow 2.8% in real terms during 2013, and 3.6% in real terms during 2014, after growth of only 1% during 2012. Unsurprisingly, the majority of this growth is coming from emerging markets and North America, while growth in the European market continues to be held back by economic contraction.

Prudential Financial Inc (NYSE:PRU)

Munich RE expects primary life insurance premiums written to grow by 2.5% during 2013 and 3.6% during 2014 after a contraction of -0.4% during 2012. The company also expects primary property and casualty insurance premiums written to grow 3.4% in 2013 and 3.6% in 2014.

The majority of this growth in primary insurance is expected to come from emerging markets, as I have already stated. Within primary property and casualty insurance, premiums in Eastern Europe and Latin America are expected to grow around 6%, and premiums in emerging economies such as China and India could expand by as much as 10% or more.

However, the life insurance market is expected to grow even faster during the next two years. Premiums written are expected to grow between 10-15% in some Asian and Latin American countries. Although, this rate of growth is slower than 2012 when the volume of premiums written grew 18%. Premiums from Africa and the Middle East are also expected to grow faster than average, but these markets continue to represent a very small portion of the global market (approximately 2.5%).

On a longer term, compounded-annual-growth-rate basis, property and casualty insurance premiums are expected to rise about 10.2% annually from now until 2020 in emerging Asian economies and about 6% in Eastern Europe and African economies. Meanwhile, life insurance premiums are expected to rise 14% on average annually in emerging Asian economies and 12% annually in Latin American economies from now until 2020.

Which company will benefit the most from these trends?

The best play for this trend, in my opinion is Prudential Financial Inc (NYSE:PRU). The company has the most exposure to fast growing Asian economies as well as exposure to the US and UK markets, which are also set grow, although not as fast as Asia

Prudential’s income split:

Region Net Income Percentage of Total
Asia $989 27.20%
Rest of the World $599 16.50%
United Kingdom $1,158 31.80%
United States $894 24.60%

Figures in millions of $US

After the UK, Asia is Prudential’s biggest market and, as shown above, the company generates slightly more than 27% of its income from the region.

As well as the fast growing insurance markets in Asia, Prudential also generates more than 30% of its income in the UK. While the UK is technically in Europe, where the insurance market is stagnating, Prudential is set to benefit for government policy shifts and an aging population in the UK.

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