Market hardening and interest rate hikes: silver lining for insurers as global economy slows

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  • The insurance industry is expected to return to growth in 2023-2024 after global total premiums contracted by 0.2% in real terms in 2022.
  • Inflation remains the top concern for insurers, with average annual global consumer price index (CPI) inflation forecast at 5.4% in 2023 and 3.5% in 2024
  • Real non-life premiums are expected to grow by 1.8% in 2023 and 2.8% in 2024; life premiums will increase by 1.7% between 2023 and 2024

Zurich, November 17, 2022 – Inflation remains the top concern for insurers according to the latest sigma from the Swiss Re Institute. The effect of inflation on the global economy has caused total global insurance premiums to decline slightly by around 0.2% in real terms in 2022. Looking ahead, the Swiss Re Institute expects that the insurance sector returns to a return to premium growth of 2.1% per year on average in real terms in 2023 and 2024, supported by a combination of slowing inflation, market hardening in the branches P&C, as well as stronger demand for life insurance. A glimmer of hope for the insurance sector comes from the central bank’s interest rate hikes which should improve medium-term investment results.

Jerome Haegeli, Swiss Re Group Chief Economist, said: “In our view, the global economy will cool significantly under the weight of inflation and interest rate shocks. The repricing of risk in the real economy and financial markets is actually healthy and long-term. positive term. Higher risk-free rates should mean higher returns for investing in the real economy. During today’s difficult times – and for the period of economic recovery ahead – the insurance industry can show its value as it provides financial resilience at all levels of the community.”

According to the Swiss Re Institute, major economies, especially in Europe, are likely to face inflationary recessions over the next 12 to 18 months amid higher interest rates. Global GDP growth is expected to slow to 1.7% in 2023 from 2.8% in 2022.

The Swiss Re Institute forecasts average annual global CPI inflation of 5.4% in 2023 and 3.5% in 2024, from 8.1% in 2022. Despite the expected slowdown, inflation is expected to remain volatile and consistently above historical averages. For insurers, inflation is a challenge as it erodes nominal premium growth, impacts global demand and creates higher claims costs in non-life lines.

Insurance market improvements in 2023 and 2024 as economies recover and pricing improvements take effect

The Swiss Re Institute expects real non-life premium growth to decline to 1.8% in 2023 and 2.8% in 2024 after sluggish growth of 0.9% in real terms in 2022. In Europe, the rebound expected reflects improving economic conditions as the region recovers from the upcoming downturn. In addition, potential increases in insurance rates and lower inflation in the United States, as well as more favorable real growth in Asia should support stronger premium growth in these regions. China, which accounts for 60% of emerging market non-life premiums, can expect real non-life premium growth of 4.0% in 2023 and 5.8% in 2024.

Business lines should benefit the most from the tightening of tariffs and grow more than Individual lines (excluding health) in the years to come. The Swiss Re Institute forecasts commercial premium growth of 3.3% in 2022 and an increase of 3.7% in 2023. In contrast, personal insurance premiums worldwide are expected to decline by 0.7% in 2022 , mainly due to the underperformance of motor insurance in advanced markets, and then return to growth of 1.8% in 2023.

The cost of living crisis in advanced markets is estimated to have caused global life insurance premiums to contract by 1.9% in real terms in 2022. This is expected to be followed by real premium growth of 1 .7% in 2023 and 2024, mainly driven by 4.3% growth in emerging markets, including China.

Drivers of life premium growth diverge in advanced and emerging markets. Inflation in advanced markets, particularly in Europe, squeezes household budgets and therefore reduces consumer demand for personal savings products. In emerging markets, the growth of the middle class and government targets for life insurance penetration are supporting growth in the savings business. Demand is also supported by younger, more digitally savvy consumers in emerging markets who are more aware of the benefits of purchasing long-term life insurance policies.

Table 1: Forecast of insurance premiums in real terms

Total

non-life

Life

2022

2023-24E

2022

2023-24E

2022

2023-24E

World

–0.2%

2.1%

0.9%

2.3%

–1.9%

1.7%

Advanced Markets

All

–0.8%

1.6%

0.6%

1.9%

–2.8%

0.8%

North America

1.2%

1.5%

1.0%

1.9%

1.5%

0.0%

EMEA

–2.9%

1.6%

–1.2%

1.9%

–4.2%

0.7%

Asia Pacific

–3.9%

2.2%

2.1%

2.3%

–6.0%

2.0%

Emerging Markets

All

2.1%

4.2%

2.7%

4.1%

0.9%

4.3%

Excl. China

1.5%

4.0%

1.4%

3.2%

2.1%

5.1%

China

2.6%

4.3%

3.6%

4.7%

0.2%

3.7%

Table 2: Forecast real GDP growth and CPI inflation in selected regions, 2022 to 2024

2021

2022F

2023F

2024F

Real GDP growth,
avg. annual %.

Global

5.8%

2.8%

1.7%

2.8%

WE

5.7%

1.8%

0.1%

1.6%

UK

7.4%

4.3%

–1.0%

0.9%

Eurozone

5.2%

3.1%

–0.2%

1.3%

Japan

1.7%

1.3%

1.3%

1.0%

China

8.1%

3.4%

4.1%

4.9%

Swiss

4.2%

2.2%

0.9%

1.5%

Inflation, headline CPI,
annual average, %

Global

3.6%

8.1%

5.4%

3.5%

WE

4.7%

8.1%

3.7%

2.8%

UK

2.6%

9.1%

7.0%

3.7%

Eurozone

2.6%

8.6%

6.2%

3.0%

Japan

-0.2%

2.3%

1.5%

0.9%

China

0.9%

2.3%

2.6%

2.4%

Swiss

0.6%

2.9%

2.0%

1.5%

F = forecast.
Source: Swiss Re Institute

How to order this sigma study:

Sigma 6/2022, “Risk of Repricing from Inflationary Recessions: Global Economic and Insurance Outlook 2023/24” is available in electronic format. You can download it here.

Disclaimer

Although all information presented herein has been derived from reliable sources, Swiss Re does not accept any responsibility for the accuracy or completeness of any information provided or any forward-looking statements made. The information provided and forward-looking statements made are for informational purposes only and in no way constitute or should be taken to reflect the position of Swiss Re, in particular with respect to any pending or future litigation. In no event shall Swiss Re be liable for any financial or consequential loss or damage arising from any reliance on this information and readers are cautioned not to place undue reliance on any forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

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