The insurance industry is forecasted to return to premium growth of 2.1% annually on average in real terms in 2023 and 2024 following total global premiums falling by an estimated 0.2% in real terms in 2022 due to inflation, which remains the key concern for insurers, according to Swiss Re Institute’s latest sigma report.
This growth is supported by a combination of easing inflation, market hardening in property and casualty lines, as well as stronger life insurance demand, the Swiss Re institute noted.
According to the Institute, central bank interest rate increases are expected to improve investment results over the medium term, becoming a silver lining for the insurance industry.
Jérôme Haegeli, Swiss Re Group Chief Economist said: “In our view, the global economy will cool down noticeably under the weight of inflation and interest rate shocks. The repricing of risk in the real economy and financial markets is actually healthy and a long-term positive. Higher risk-free rates should mean higher returns for investing into the real economy. During today’s challenging times – and for the economic recovery period 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, notably in Europe, are likely facing inflationary recessions in the next 12–18 months amid higher interest rates. Global GDP growth is forecast to slow to 1.7% in 2023, from 2.8% in 2022.
Average annual global CPI inflation is forecasted at 5.4% in 2023 and 3.5% in 2024, down from 8.1% in 2022. For the US it is forecasted at 3.7% and 2.8% in 2023 and 2024 respectively. The forecast for the UK is 7.0% in 2023 and 3.7% in 2024.
For the Euro area, CPI inflation is forecasted at 6.2% in 2023 and 3.0% in 2024, down from 8.6% in 2022.
As economies recover, and pricing improvements take effect insurance markets will see improvements next and the following year, the Swiss Re Institute noted.
Real non-life premiums are forecasted to grow by 1.8% in 2023 and 2.8% in 2024. The Institute said: “In Europe, the expected rebound reflects improving economic conditions as the region recovers from the forthcoming downturn.
“In addition, potential insurance rate increases and easing inflation in the US, as well as more favourable real growth in Asia are expected to support stronger premium growth in those regions. China, which represents 60% of emerging market non-life premiums, can anticipate 4.0% real non-life premium growth in 2023 and 5.8% in 2024.”
The Institute expects commercial lines to benefit most from rate hardening and expand more than personal lines (excluding health) in the coming years.
Commercial lines premiums are estimated to grow 3.3% in 2022 and to increase 3.7% in 2023. In comparison, global personal lines insurance premiums are expected to shrink by 0.7% in 2022 – mainly due to underperformance in motor insurance in advanced markets – and then recover to 1.8% growth in 2023.
Global life insurance premiums are forecasted to grow by 1.7% across 2023 and 2024, compared to the estimated contraction of 1.9% in real terms in 2022, mainly due to the cost-of-living crisis in advanced markets, the Institute noted.
The Swiss Re Institute concluded: “Life premium growth drivers are diverging in advanced and emerging markets. Inflation in advanced markets, particularly Europe, is squeezing household budgets and therefore reducing consumer demand for individual savings products. In emerging markets, the growing middle class and government targets for life insurance penetration are supporting growth in savings business. Demand is also being supported by younger, digitally savvier emerging markets consumers who are more aware of the benefits of holding long term life policies.”