Global insurance premiums are expected to recover in 2021 after contracting this year on the back of a COVID-19-induced economic recession, according to the latest Swiss Re Institute sigma report.
While expected to be short-lived, Swiss Re warns that this year’s recession is set to be the deepest since the Great Depression of the 1930s.
As a result, global insurance demand is expected to dip in 2020, led by a 6% contraction in the life segment and a far less dramatic 0.01% contraction in the non-life space. In comparison, Swiss Re notes that life premiums grew by 2.2% and non-life premiums by 3.5% in 2019.
The reinsurer states that one of the reasons for only a very slight contraction in the non-life space in 2020 is that the ongoing COVID-19 pandemic hit at a time of rate hardening, which ultimately supported premium expansion. In contrast, on the life side, the lower interest environment means that savings products will be more affected, while mortality-related covers are expected to be more stable, says Swiss Re.
The reinsurer states that rate hardening is likely to persist in the non-life space owing to potentially high losses and contracting insurance supply, most notably in commercial lines. This, combined with an expected recovery of insurance premiums, will support earnings over the longer-term, says Swiss Re.
According to Swiss Re Institute’s latest sigma, the hardest hit premiums are expected to be in trade and travel-related insurance business such as marine, aviation and credit, while property and medical is expected to be more stable.
Overall, Swiss Re expects that total premium volumes will return to pre-crisis levels in 2021, alongside a more protracted recovery in the global economy.
Jerome Jean Haegeli, Group Chief Economist at Swiss Re, commented: “The insurance industry is showing resilience in face of the COVID-19-led economic downturn. The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008-09, even though this year’s economic contraction of around 4% will be much more severe.
“Unlike for the global economy, we expect a strong V-shaped recovery in insurance premiums, a remarkable showing considering that the world is currently in the throes of the deepest recession ever.”
Despite the global recession, the sigma report finds that in emerging markets (led by China), premium growth will actually remain positive in 2020 at up 1%, with growth of 7% expected in 2021. It’s a more challenging outlook for advanced markets, however, with global premium expected to contract by 4% this year and return to positive growth of above 2% in 2021.
Regarding the claims burden from the pandemic, and Swiss Re notes that although the outlook remains widely uncertain, the insurance industry is very well capitalised to absorb losses. Undoubtedly, industry profitability will be challenged as companies grapple with pandemic-related losses alongside muted investment returns as a result of low interest rates.
“The industry’s capital position means it should be able to handle the COVID-19 shock. The upper end of the range of total property and casualty claims estimates by most external insurance analysis is USD 100 billion, similar in scale to losses caused by Hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed,” said Haegeli. “The COVID-19 experience highlights the importance of insurance provision for pandemics. It is a lesson for insurers and policy makers alike who, in the interest of long-term societal and economic stability, should look to develop more public-private partnership solutions for pandemic risks.”
Additionally, Swiss Re says that the pandemic will “accelerate other paradigm shifts”, such as a restructuring of global supply chains, new premium pools in property, engineering and surety insurance.