According to Swiss Re Institute's annual World Insurance sigma report, the latest figures indicate that the global economy has remained resilient, paving the way for growth and improved profitability in the insurance industry.
Geopolitical tensions and higher inflation have contributed to economic concerns in recent years. Jérôme Haegeli, Swiss Re's group chief economist, said that the insurance industry has reached a new equilibrium after recent challenges.
“The global economy has surprised on the upside, which should drive more demand for insurance. The life sector in particular is one to watch as higher interest rates drive investment income and consumer demand for annuities, giving more people secure retirement incomes,” Haegeli said.
Swiss Re Institute projects that global gross domestic product (GDP) will grow by 2.7% in real terms in 2024, maintaining the same growth rate as in 2023. This growth is expected to continue into 2025 with an estimated 2.8% increase in real terms.
While the overall outlook is positive, regions are on different growth paths. The US is forecasted to grow at 2.5% in 2024, while the euro area is expected to experience below-trend growth of 0.7%.
The trend toward global disinflation continues, but returning to target inflation levels is unlikely to be smooth. In the US, inflation is expected to reach target levels by 2025, driven by higher-than-anticipated core services prices.
In contrast, Europe is already nearing its target inflation levels due to falling energy prices in 2023, softer core prices, and expected deceleration in wage growth.
Swiss Re Institute anticipates improved profitability for non-life insurance, despite inflation-driven increases in claims costs. Non-life insurers have raised rates in recent years, and higher prices are expected to continue for personal lines in 2024, moderating in 2025.
Although commercial lines have also seen rate increases, these have decelerated in some markets. Non-life premium volume is forecasted to build on the 3.9% growth achieved in 2023, reaching $4.6 trillion in 2024 and $4.8 trillion in 2025.
Kera McDonald, chief underwriting officer at Swiss Re Corporate Solutions, remarked that commercial insurance accounts for nearly half of the total property and casualty market.
“We expect commercial P&C carriers to maintain profitability in 2024, as rate trends have enabled lines like property to stay sustainably priced. The industry has seen single-digit rate increases for property business written this year. On the casualty side, we observe a trend of general market softening across most long tail lines,” McDonald said.
Property and casualty insurers are anticipated to improve profitability in 2024, with an industry-wide return on equity (ROE) across eight major markets at 10% this year, up from 6% in 2023. This trend of above 10% ROE is forecasted to continue into 2025.
The life insurance industry is benefiting from higher interest rates, driving both top-line growth and improved profitability. Swiss Re Institute forecasts 2.9% premium growth for the life insurance sector by the end of 2024, reaching a total premium pool of $3 trillion.
Similar growth of 2.7% is expected in 2025. Significant rebounds in growth are anticipated in many key markets, with Western Europe and advanced APAC returning to premium growth.
A major growth area for life insurance is the uptake of annuities to enhance retirement savings. In the US, sales of fixed-rate annuities jumped 63% in 2022 and 36% in 2023. Over the long term, advanced markets are expected to contribute half of all additional premiums over the next decade, driven by strong growth in annuities.
For 2024, Swiss Re Institute forecasts that increased premiums and investment income will boost profitability in the life sector, with operating results across eight top markets expected to increase by 15% for the year.
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