The economic research division of re/insurer MAPFRE has sharply revised its forecasts for the world economy and expects an unprecedented impact on activity due to COVID-19.
However its report does underline the uncertainty of the situation and says it is impossible to anticipate the results of economic and social policy decisions.
The range of base scenarios taken into consideration vary depending on the impact caused by the virus and the suppression or containment measures taken.
Under these new criteria, which will be applied throughout the crisis, the experts expect the global economy to contract between 3% and 8.2% this year.
This compares to the previous report which expressed an expectation that economic growth will grow by 3.1% in 2020 for the global economy, with a stronger performance from emerging markets, which are now likely to suffer more than developed economies, and with a knock-on effect on insurance.
The report states that “the economic cost is enormous, which we are currently seeing due to supply disruptions, risk aversion,and the potential financial implications.”
Like the economy, the insurance industry is experiencing an unprecedented situation. The report’s analysis of the worst economic crises of the last forty years shows that, overall, sharp declines in GDP lead to significant setbacks in insurance premiums at the aggregate level, in both emerging and developed markets.
However, the effects are uneven across the different lines of business. Automobile, business, industrial,and life insurance are the hardest hit and will suffer the short-term consequences of the crisis.
The report states that health insurance has remained very resilient in these situations, even behaving anti-cyclically at the worst times of the crisis.
Homeowners insurance tends to slow down, without experiencing large setbacks. For traditional life savings and annuity insurance, the most unfavourable effect (with structural and medium-to long-term implications) is the low-interest-rate environment.
This was previously a problem for economies in developed countries, but is now spreading to emerging markets.
