The latest sigma report from Swiss Re Institute (SRI) expects the global insurance market to register notable growth in 2022 and 2023 despite challenges.
The global economy is slowing sharply, and inflation is at multi-decades highs with expectations to see ‘inflationary recessions’ in many major economies over the next 12-18 months. Central banks are hiking interest rates, targeting price stability over economic growth. The study said that this is a notable positive to the current challenging conditions on two fronts. It will help ward off a 1970s-style stagflation and also signals the end of the era of financial repression. For insurers, rising interest rates are a silver lining with investment returns set to improve.
The report expected high inflation to remain for longer and forecasted higher rates of inflation for the 2020s decade than in the previous 10 years. In the case of China, structural factors such as increased productivity and rising digitalisation, among others, will lead to lower trend inflation.
For insurers, the main inflation impact will show in rising claims costs, more in non-life than life insurance in which policy benefits are defined at inception. Motor and liability lines of business will likely be most immediately impacted. Accident, and motor and general liability will also be impacted, with inflation feeding into bodily injury claims.
The SRI study estimated strong 6.1% nominal growth in total premiums (non-life and life) in 2022. In real terms, however, that translates into near flat growth (+0.4%). Nevertheless, in nominal terms total premiums volumes are expected to exceed the $7tn mark for the first time ever this year. Estimates are based on strong market recovery from pandemic-induced lows, continued rate hardening in non-life and stronger premium growth in emerging markets in particular.
In non-life, inflation of exposure values and rate hardening will boost global premium growth. Commercial lines (including workers compensation) will continue to expand more than personal lines (including health). It is estimated to register a 1.1% increase in commercial premiums in 2022, and a 3.1% gain in 2023, supported by rate hardening. Personal lines insurance premiums will expand by an estimated 0.5% in 2022, mainly on account of stagnation in advanced markets.
In life, the report estimated that global premiums will contract slightly by 0.2% in real terms in 2022. Saving premiums, which represent more than three quarters of the life sector, will likely suffer from volatile financial market conditions and falling disposable incomes. Increased risk awareness will continue to support demand for life protection products. M