According to the new sigma report from the Swiss Re Institute, Risk on the rise as headwinds blow stronger, the global insurance industry’s strengthening financial position offers welcome reinforcement against elevated macroeconomic and geopolitical risks.
The Institute says it forecasts a slowdown coming to the world economy as headwinds from tighter monetary policy gather force and the growth impulses of 2023 fade. The outbreak of war in the Middle East heightens the risks to the outlook, and the belief is that (geo)politics playing a more dominant role in the economic environment.
For the global insurance market, this backdrop of geopolitical and macroeconomic instability dampens the growth outlook. Profitability is improving in both life and non-life insurance, but non-life is facing challenging claims dynamics and Swiss Re Institute forecasts a persistent profitability gap with the prediction that hard market conditions are likely to continue in 2024 at least.
Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist, 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.”
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.”
The full findings of this latest research from the Swiss Re Institute are available by downloading Sigma 6/2023, Risk on the rise as headwinds blow stronger – economic and insurance market outlook 2024/25 in electronic format here.
