“In our view, the global economy will cool down noticeably under the weight of inflation and interest rate shocks,” said Jérôme Haegeli, Swiss Re group chief economist. “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.”
Major economies, especially in Europe, are likely to face inflationary recessions in the next 12 to 18 months amid higher interest rates, Swiss Re Institute said. Global GDP growth is projected to slow to 1.7% in 2023, down from 2.8% this year.
Swiss Re Institute predicted 5.4% average annual global CPI inflation in 2023 and 3.5% in 2024, down from 8.1% in 2022. Despite a predicted easing of momentum, inflation is predicted to remain volatile and persistently above historical averages. Inflation is challenging to insurers because it erodes nominal premium growth, impacts global demand and creates higher claims costs in non-life lines, Swiss Re Institute said.
The report predicted that non-life real premium growth would recover to 1.8% in 2023 and 2.8% in 2024 after weak 0.9% growth in real terms this year. In Europe, the predicted improvement reflects strengthening economic conditions as the region recovers from the coming downturn. Potential insurance rate increases and easing inflation in the US and more favorable real growth in Asia are expected to support stronger premium growth in those regions, the report said. China, which accounts for 60% of emerging market non-life premiums, is projected to see 4% real non-life premium growth in 2023 and 5.8% in 2024.
Commercial lines are projected to benefit most from rate hardening and expand more than personal lines (excluding health), the report said. Swiss Re estimates a 3.3% growth in commercial premiums this year and a 3.7% increase in 2023. In contrast, global personal lines premiums are predicted to shrink by 0.7% in 2022 – driven primarily by underperformance in motor insurance in advanced markets – then recover to 1.8% growth next year.
The cost-of-living crisis in advanced markets is estimated to have driven a contraction in global life insurance premiums of 1.9% in real terms in 2022, Swiss Re Institute said. The report predicted this contraction would be followed by real premium growth in 2023 and 2024 of 1.7%, primarily due to 4.3% growth in emerging markets, including China.
The report found divergence in life premium growth drivers in advanced and emerging markets. Inflation in advanced markets, especially Europe, is tightening household budgets and reducing consumer demand for individual savings products. In emerging markets, by contrast, the growing middle class and government targets for life insurance penetration are driving growth in savings business. Demand is also being supported by younger, more digitally savvy emerging markets consumers who are more aware of the benefits of long-term life policies, the report said.