A new report from Swiss Re cements the global insurance industry’s position as the world at large faces elevated risks, both macroeconomic and geopolitical.
As the global economy heads into 2024, a slowdown is anticipated, with real GDP growth projected at 2.2%, a decrease of 0.4 percentage points from the robust growth experienced in 2023. This deceleration is marked by varying economic conditions across major regions: the US is expected to maintain growth, Europe faces stagnation, and China contends with internal growth challenges. Additionally, the Middle East conflict has escalated risks to the global economic outlook.
The Swiss Re Institute’s report, “Risk on the rise as headwinds blow stronger – economic and insurance market outlook 2024/25,” notes that the global insurance industry’s financial strength is a key factor in countering heightened macroeconomic and geopolitical uncertainties.
In 2023, robust labour markets have been pivotal, with the US and euro area exhibiting historically low unemployment rates. This strength in employment has buoyed consumer demand, particularly in the US, where consumer spending is projected to rise by 2.4% in real terms. However, this labour market resilience is viewed not as a reacceleration but as a delayed response to monetary policy impacts.
Europe faces a higher recession risk compared to the US, partly due to the impact of the conflict between Israel and Hamas in October. With inflation rates exceeding targets, central banks in advanced economies are expected to maintain restrictive interest rates for the next two years.
In the property-casualty insurance sector, premium growth is anticipated to moderate from 3.4% in 2023 to around 2.6% in 2024 and 2025. Improved profitability, with a return on equity (ROE) of about 10% in 2024 and 2025, is expected, surpassing the 10-year average of 6.8%. This uptick in profitability is attributed to higher investment returns amid rising interest rates and enhanced underwriting outcomes due to more aligned premium rates.
Investment returns in the non-life segment exceeded 3.3% in 2023, with further increases projected for the next two years. Underwriting benefits from disinflation and better terms and conditions, helping to offset the impact of inflation on claims costs.
The life insurance industry is adapting to the new reality of higher interest rates, with strong growth anticipated in savings products. This growth is driven by an expanding global middle class and an increased reliance on insurers for retirement planning. The sigma report predicts a robust recovery in premium growth, with 1.5% total real-term global growth in 2023, following a contraction in 2022. Emerging markets are expected to drive this growth significantly.
Global savings premiums, which stood at US$2.3 trillion in 2022, are forecasted to reach US$4.0 trillion by 2033. This represents a 2.7% average annual growth rate in real terms, equating to a 65% increase in new business premiums over the next decade. The growth forecast is particularly notable given the past two decades were marred by the global financial crisis, a prolonged low interest rate era, and the pandemic.
“Fading economic tailwinds and geopolitical uncertainties reinforce the primary insurance industry’s essential role in risk transfer. While the sector will continue to strengthen its profitability, mainly driven by improved risk-adjusted pricing as well as higher investment returns, it is not yet expected to earn its cost of capital in 2024 or 2025 in most markets as economic inflation will continue to have a negative impact on claims costs,” Swiss Re Group chief economist Jérôme Jean Haegeli said.
In a recent IB interview, Swiss Re head of life & health global underwriting, claims, and R&D Natalie Kelly discussed the stigma around mental health issues and how the pandemic was a catalyst for change in the mental health conversation.
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