The finance and insurance industry has undeniably seen a turbulent 2021, yet given the underlying conditions, many are surprised at how resilient these institutions have been. With many countries’ economies being periodically shut down by governments across the world due to the coronavirus (COVID-19) pandemic, the financial sector saw record falls as both money and investment opportunities dried up. Yet, largely owing to the fiscal policies of many governments, many of the core elements of the industry have been able to recover. For example, government programs intended to make sure people have enough income to live off helped keep bank accounts and insurance policies open, while financial support to corporations has limited the extent of stock price falls and ensured at least some investment opportunities remain. The core logic is that, for there to be any form of rapid economic recovery once the pandemic is over, the existence of a functioning financial system is a necessary condition.
INDUSTRY DEFINITION
At its broadest level, the financial sector includes a wide range of firms and institutions that provide financial services to commercial and retail customers. These can range from companies that provide specific services such as insurance and banking, to the general trading of financial assets and currencies, to regulatory institutions designed to structure financial transactions. Often the providers of financial services are involved with many aspects of the sector – for example, with how insurance companies and banks derive revenue from investing customers’ money. Ultimately, the aim of the financial services sector is to ensure people with excess money can invest it in a way that efficiently allocates it to businesses and individuals in need of resources. Necessary for this to occur is a degree of transparency over the risk associated with these investments, hence the need for insurance products and regulatory frameworks.
FINANCIAL INSTITUTIONS
- TOTAL ASSETS OF CENTRAL BANKS WORLDWIDE: 41.9tr USD
- LARGEST INVESTMENT BANK WORLDWIDE: JPMorgan
- LEADING BANK IN EUROPE: HSBC Holdings
INDUSTRY DEFINITION
The category Financial Institutions presents statistics and reports on establishments that provide financial services. These establishments include central banks, retail and commercial banks, online banks, investment institutions, and asset management companies, among others.
MARKET SIZE
The worldwide market capitalization of banking sector dropped in 2020
The market capitalization of the largest global banks took a hit during 2020 because of the global economic crisis caused by the coronavirus pandemic. Some of the world’s largest banks saw market cap values drop by more than a third, and some almost by half, throughout the year. The total aggregated market cap dropped significantly during the first quarter of 2020 and recovered slightly throughout the year, but with values far from the ones recorded in 2019.
MARKET SEGMENTS
U.S. asset management companies dominate the global financial market
Asset management companies are another key component of financial institutions. These companies manage funds for individuals and companies. The world’s leading asset managers are dominated by U.S. firms, more specifically, eight of the ten largest asset management companies in the world are based in the United States, the biggest one being BlackRock.
INDUSTRY TRENDS
Digital challengers on the rise
With the rising trend of online banking, established retail banks are since a few years back being challenged by online banks. The banks exist purely in digital form, and customers may prefer it to a traditional bank due to its easy access through the app, their personalization features, and their low fees. The British unicorn Revolut was the largest venture capital-backed online bank in Europe as of 2020.
INDUSTRY LEADERS
Which is the world’s largest bank?
The world’s largest bank is the Chinese bank Industrial and Commercial Bank of China (ICBC). The state-owned commercial bank had total assets reaching around 4.3 trillion U.S. dollars in 2019. The three following largest banks in the world are also headquartered in China, China Construction Bank Corporation, Agricultural Bank of China, and Bank of China.
UNIQUE ASPECT OF THE INDUSTRY
Who is the world’s largest wealth manager?
Wealth managers serve high net worth individuals (HNWI), whose investible wealth exceeds one million U.S. dollars, by managing their assets and optimizing their investment portfolios. Their investible wealth might refer to property, land, stocks, bonds, etc. The largest wealth manager in the world in 2020 was Bank of America’s Global Wealth and Investment division, with around 1.35 trillion U.S. dollars in assets under management.
FINANCIAL INSTRUMENTS & INVESTMENTS
- THE LARGEST ONE-DAY POINTS LOSS OF THE DOW JONES INDUSTRIAL AVERAGE (MARCH 16, 2020): 2,997.1 points
- THE LARGEST ONE-DAY POINTS GAIN OF THE DOW JONES INDUSTRIAL AVERAGE (MARCH 24, 2020): 2,112.98 points
- YIELD ON 10 YEAR U.S. GOVERNMENT BONDS AS OF AUGUST 2019: 0.65%
Owing to the economic consequences of the coronavirus (COVID-19) pandemic, 2020 has been a turbulent year for financial markets and other investments. March 2020 saw some of the steepest drops on stock markets in recorded history – for example, the Dow Jones Industrial Average in the United States recorded its three largest falls ever (measured in points) during the month. Since then share prices have somewhat recovered, albeit in a patchy and inconsistent manner owing to differing governmental responses, and the different ways businesses were affected by the pandemic. For example, the Dow Jones also reached record heights in 2020, fueled by fiscal stimulus measures directed at providing liquidity to the corporate sector, and its inclusion of sought-after stocks like Apple. Meanwhile, other indexes such as the FTSE are well behind their pre-corona peaks. Bond markets have also been especially hard hit, with many European government bonds having yields below zero for much of 2020.
INDUSTRY DEFINITION
The primary goal of investing in financial instruments is the efficient allocation of monetary resources within a capitalist economy. Such investment in an open market allows people with excess financial resources to give these funds to businesses or individuals who need them, with the promise of some kind of return for their investment. A variety of different financial instruments are used to achieve this, such as shares, bonds, currencies, and derivatives (which effectively bet on the future price of a commodity or financial asset).
MARKET SIZE
The United States is home to the two largest stock exchanges
By far the two largest stock exchanges in the world are the NYSE and the NASDAQ – both located in New York. City. Taken together, the value of the shares listed on these two exchanges had a combined market capitalization of over 36 trillion U.S. dollars – more than the next eight-largest stock market operators combined. The next three largest stock exchanges are located in East Asia, followed by the two major European stock exchange operators (Euronext and the LSE Group).
MARKET SEGMENTS
Bonds have out-performed equities over the last 20 years
The two most prominent financial instruments are equities and bonds. Equities (or shares) are the ownership of a portion of a company, which can then be traded. The value of this portion may fluctuate depending on the company’s performance and market conditions, making equities a potentially risky investment. Bonds differ in being a low-risk, fixed price investment where a company or government receives an amount of money to be repaid after a certain period, along with regular interest payments.
INDUSTRY TRENDS
ESG investments set to rise
Environment, Social and Corporate Governance (ESG) reflects the environmental and social impact of an investment. Two main factors are driving the growth of ESG investments. First, is concern over the climate crisis, with many investors worrying that consumer sentiment will turn against companies who are not environmentally responsible. Second, is changing attitudes toward many social issues, such as worker conditions, community investment and support for diversity and inclusion.
INDUSTRY LEADERS
U.S. stock exchanges host the largest trading volumes
While the two largest stock markets in the U.S. – the NASDAQ and the NYSE – have far larger market capitalizations than any other stock exchange, looking at trading volumes narrows the gap significantly. While still the two largest stock exchanges with 16 and 14 billion U.S. dollars of stock traded in 2019 respectively, fourth-placed Shenzhen Stock exchange is not far behind at 11.5 billion U.S. dollars. Based on trading volumes, U.S. markets top the list, followed by East Asia, then Europe.
UNIQUE ASPECT OF THE INDUSTRY
Bond markets react to interest rates
In addition to stocks, investors often choose to trade bonds on financial markets. Bonds offer a low risk, stable return, with the issuer paying periodical interest then the original amount upon ‘maturity’. For this reason bonds are often traded before maturing, effectively allowing investors to lock in a secure interest rate. If investors expect interest rates to fall it makes sense to purchase existing bonds, but if rates rise then investors lose out as new bonds issued have a higher return.
FINANCIAL SERVICES
- LARGEST PAYMENT CARD BRAND WORLDWIDE: Visa
- LEADING REGION FOR VENTURE CAPITAL FINANCING WORLDWIDE: North America
- GLOBAL INVESTMENTS IN FINTECH COMPANIES: 135.7bn USD
Financial services include a wide variety of services that make up an essential part of our everyday life. Commercial banks supply customers with personal, commercial and mortgage loans, payment cards, and investment products among other things. Investment banks offers services such as access to capital markets and underwriting debt and equity to assist in company deals such as mergers and acquisitions.
INDUSTRY DEFINITION
The financial services section covers a broad range of statistics and facts on wide variety of sectors. These sectors include corporate financing, fintech, loans and leasing, mergers and acquisitions and private equity, payments, and savings and debt.
MARKET SIZE
Saudi Aramco was the largest IPO globally
Private companies can grow through an initial public offering (IPO), which is when the company offers shares to the public for the first time through a stock exchange to raise money. The largest IPO worldwide as of June 2020 was of Saudi Aramco, a Saudi Arabian multinational petroleum and natural gas company. Their IPO raised around 26.6 billion U.S. dollars in December 2019.
MARKET SEGMENTS
Which company is the highest valued unicorn globally?
A unicorn is a privately owned company with a market value of over one billion U.S. dollars. The Chinese FinTech company ANT Group, formerly known as ANT Financial, was the highest valued unicorn worldwide as of January 2020. The group owns Alipay, which is the largest digital payment platform in China. ANT Group was valued at 125 billion U.S. dollars by venture capital firms in 2020.
INDUSTRY TRENDS
Fintech is a rapidly growing industry
With the increasing trend of ecommerce purchases and mobile payments, fintech is a rapidly growing industry serving both consumers and businesses. The new technological solutions developed for the financial services industry are mostly made by startup companies. There were almost 8.8 thousand fintech startups in North America in 2020, which is the leading region for Fintech startups in the world.
INDUSTRY LEADERS
PayPal continues to grow their customer base
One of the most popular online and mobile payment systems around the globe is PayPal. After more than a decade of continuous growth in number of users, the online payment provider had 361 million active user accounts as of third quarter 2020. The company was founded in 1998 and provides online money transfers and payment processing for online vendors and other commercial users.
UNIQUE ASPECT OF THE INDUSTRY
The largest acquisition deal in history
The world’s highest valued merger and acquisition transaction was Vodafone AirTouch PLC’s takeover of Mannesmann AG in 1999. The deal reached a transaction value of 202.8 billion U.S. dollars, and no larger merger and acquisition deal has taken place since. The financial advisor of Vodafone for the acquisition was Goldman Sachs Group Inc., which is the second largest financial advisor to M&A deals worldwide, after the leader JPMorgan.
INSURANCE
- ESTIMATED SIZE OF THE GLOBAL INSURANCE MARKET IN 2020: 5.8tr USD
- SHARE OF NORTH AMERICAN INSURANCE COMPANIES ALREADY IMPLEMENTING DIGITAL TRANSFORMATION PROJECTS TO ENHANCE RESILIENCE: 32.9tr USD
- SHARE OF NORTH AMERICAN INSURANCE COMPANIES ALREADY IMPLEMENTING DIGITAL TRANSFORMATION TO ENHANCE RESILIENCE: 55%
Compared to many other industries, the insurance market is expected to recover relatively quickly from the coronavirus (COVID-19) pandemic. While there will certainly be major impacts to the industry – especially given most insurance companies generate significant revenue by investing policy holders’ premiums – several factors party mitigate the effects. First, many core insurance products are likely to be unaffected by financial hardship. Products like health, home, and auto insurance are not only considered essential by many consumers but are often compulsory. Second, the lockdown has reduced many risks which can lead to insurance claims (for example by reducing vehicular traffic). And third, the pandemic has led many insurance companies to pursue digitalization projects that are likely to generate medium-term efficiency gains once conditions return to normal. For these reasons, it is expected the insurance industry rebound and will surpass its 2019 market size in 2021.
INDUSTRY DEFINITION
While often being at the forefront of technological innovation, at its core the insurance industry is almost as old as civilization itself. The two core concepts of insurance – shifting losses from the individual to the group by pooling funds and implementing risk mitigation measures, and the (public or private) investment of these mutualized funds – can be traced back as far as ancient China and Babylon. This should not be surprising as many of the risks central to the insurance are perpetual facts of human existence: sudden injury, illness, death, and damage to property.
MARKET SIZE
Global insurance premiums reached over six trillion U.S. dollars in 2019
Insurance is one of the largest industries in the world, with a global market value greater than the gross domestic product (GDP) of many countries. While estimates can vary, most sources put the figure at around six trillion U.S. dollars of insurance premiums written in 2019. For perspective, the only two countries with a higher GDP than this in 2019 were the United States and China – making the global insurance industry larger than the overall economy of countries such as Japan and Germany.
MARKET SEGMENTS
Non-life insurance has overtaken life insurance to become the largest market segment
Historically life insurance has been the largest segment of the global insurance market, accounting for 55 to 60 percent of the market since at least 2006. This changed in 2017 though, with the non-life segment achieving a market share of about 53 percent. Non-life insurance relates to the protection of material and financial possessions such homes and cars. Conversely, life insurance covers insurances relating to the life and death of a person, including health insurance in many countries.
INDUSTRY TRENDS
Digitalization and the associated security risks are fundamentally changing the insurance industry
A major trend in the insurance industry is digitalization, which promises to reduce costs through the automation and the use ‘Big Data’ to generate more sophisticated risk profiles of new and existing customers. Accordingly, around half of insurance companies plan to increase expenditure on data analytics. However, increased reliance on data increases risks around the storage and handling of data – making cybersecurity and data storage the biggest tech spending priorities of insurance companies.
INDUSTRY LEADERS
Berkshire Hathaway has the highest revenue of any insurance company
Based on revenue, the largest insurance company in the world is U.S.-based Berkshire Hathaway, who recorded an annual revenue of over 250 billion dollars in 2019. This ranking is somewhat misleading though, as Berkshire Hathaway are a holding company with investments across many industries. The next largest insurance companies – whose revenue is tied more directly to the insurance industry – are Chinese company Ping An, French insurer AXA, and China Life Insurance.
REGIONAL OVERVIEW
The U.S. accounts for around half the global insurance market
The largest insurance market in the world is the United States, accounting for around half of the global market. Interestingly, the next-largest markets do not track the overall size of countries’ economies. This trend is due to several factors. It partly reflects consumer need, with some insurances are publicly provided in some countries but not others. However, it also reflects the regulatory environment, with certain countries offering various incentives to attract international providers.
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