The global insurance industry has strengthened its resilience in a challenging environment, led largely by health insurance that has returned to positive growth, according to Swiss Re Institute.
But after a resilient 2023 powered by strong US economic growth, Swiss Re expects the world economy to slow by 0.4 percentage points to 2.2% of real GDP growth in 2024.
“We forecast 2.2% average real growth in global total insurance premiums in the next two years (2024 and 2025), after moderate growth of 1.5% in 2023,” Swiss Re said in its annual six-part sigma research, released today.
The Risks on the rise as headwinds blow stronger: global economic and insurance market outlook 2024‒25 report noted “Our forecast is well below the trend of the two years prior to Covid-19 (2018‒2019: 2.8%), although it is higher than the average growth of the past five years (2018‒2022: 1.6%).
The growth in the sector will be lead by health insurance, Swiss Re said.
“This is principally due to a return to growth in health insurance (1.5% vs. 2023: ‒0.6%),” it added.
Global picture
The overall global picture sees a changing landscape with US growth in the lead and geopolitics having a dominant role in driving economic environment.
Swiss Re expects global real GDP growth at 2.2% for 2024, down from a 2.6% estimate for 2023, before a revival to 2.7% in 2025.
“Major economies are diverging with the US continuing to grow, Europe stagnating and China grappling with structural domestic growth challenges.”
“The global insurance industry’s strengthening financial position offers welcome reinforcement against elevated macroeconomic and geopolitical risks,” Swiss Re said.
Middle East conflict
Meanwhile the conflict in the Middle East is heightening risks to the macroeconomic outlook.
“Careful monitoring is warranted for an escalation of the conflict that could induce a 1970s style stagflation tail risk scenario and drastically stress underwriting performance,” Swiss Re said in its report.
Inflation and interest rates in developed markets are expected to stay higher in the next decade with global inflation forecast to moderate to 5.1% in 2024 and 3.4% in 2025.
Apart from health, other insurance sectors will also see growth, though not starting from a negative position.
“The life sector will see growth lift from a moderate recovery to a relatively strong annual change (2.3% average for 2024‒25 vs. 2023: 1.5%), attributable to rising demand for savings insurance in the context of high interest rates and disposable incomes.
“In property and casualty (P&C,) a significant repricing of insurance risk in 2023 means we estimate 3.4% global premium growth this year, softening to 2.6% growth forecast in 2024‒25. “
Geopolitical uncertainties
Jérôme Jean Haegeli, group chief economist at Swiss Re, said: “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 said there would be a higher risk of recession in Europe than in the US.
Charlotte Mueller, Swiss Re’s chief economist Europe, said: “The full impact of higher interest rates on the real economy is still to filter through.
“For corporates, a higher cost of capital and labour input costs will increasingly erode profit margins and could induce layoffs.
“Europe’s economy will be the key underperformer over the next two years, with some large economies like Germany already in contraction.”