Inflation number one concern for market says Swiss Re

Inflation continues to be the key concern for insurers, according to Swiss Re.

According to the (re)insurer’s latest Sigma report, Inflationary recessions re-price risk: global economic and insurance outlook 2023/24, the effect of inflation on the global economy has led to total global insurance premium falling slightly by an estimated 0.2% in real terms in 2022. 

Looking forward, Swiss Re said it expects the insurance industry to return to premium growth of 2.1% annually on average in real terms in 2023 and 2024, supported by a combination of easing inflation, market hardening in property and casualty lines, as well as stronger life insurance demand. 

It also suggested that a silver lining for the insurance industry comes from central bank interest rate increases that are expected to improve investment results over the medium term.

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 Swiss Re, 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.

Swiss Re Institute forecasts 5.4% average annual global CPI inflation in 2023 and 3.5% in 2024, down from 8.1% in 2022. Despite expected easing in momentum, inflation is anticipated to stay volatile and persistently above historic averages. For insurers, inflation is a challenge because it erodes nominal premium growth, impacts global demand, and creates higher claims costs in non-life lines.

Swiss Re also forecasts that non-life real premium growth will recover to 1.8% in 2023 and 2.8% in 2024 after weak 0.9% growth in real terms in 2022. 

In Europe, it said, 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.

Commercial lines are expected to benefit most from rate hardening and expand more than personal lines (excluding health) in the coming years. Swiss Re Institute estimates 3.3% growth in commercial premiums in 2022 and a 3.7% increase in 2023. By contrast, global personal lines insurance premiums are expected to shrink by 0.7% in 2022, primarily due to underperformance in motor insurance in advanced markets, and then recover to 1.8% growth in 2023.

“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.”

Jérôme Haegeli, Swiss Re

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