After a moderate reduction in global non-life insurance premium growth this year, owing to the ongoing pandemic, Swiss Re Institute expects global property and casualty (P&C) premiums to rebound strongly by 3.8% in 2021.
Recent analysis by Swiss Re’s Group Chief Economist, Jerome Haegeli, explores the potential for non-life insurance market growth and a stronger overall rate environment in 2021, with positive momentum in the commercial lines space expected to continue.
According to Haegeli, the decline in insurance premiums in 2020 is of a similar magnitude to that seen in 2008 after the global financial crisis. And, at the same time, the estimated economic contraction this year from the pandemic is expected to be 4%, which is far steeper than the 1.8% contraction witnessed in 2008-2009.
“From this perspective, when looking ahead to global insurance premium growth, insurance markets are more likely to bounce back quicker and harder than what global economic indicators would currently seem to imply.
“Such a recovery should boost overall growth in non-life insurance markets in 2021, even if the segment is weathering the pandemic unevenly,” says Haegeli.
There’s pros and cons to the current situation, as while premium growth will be adversely hit by declines in insurance lines linked to business activity, commercial insurance prices continue to harden, which Haegeli says is providing a tailwind to premium growth in the current year.
“Overall, we expect a moderate reduction in global non-life premium growth due to the COVID-19 crisis, and then a strong rebound in global P&C premiums by 3.8% in real terms in 2021,” he continues.
Alongside the potential for non-life market growth next year, Haegeli also notes rising prices across numerous lines, most notably in credit and surety, which, as well as liability, are likely to experience higher claims in 2020 and 2021.
“In addition to the need for prices to cover increasing loss trends, the low interest rate environment is likely to drive up prices in commercial insurance markets,” says Haegeli.
As noted by Haegeli, low interest rates were already challenging the profitability of the insurance sector before the introduction of COVID-19, and further rate cuts designed to aid economic recovery will undoubtedly aggravate the situation.
In the non-life commercial space, some players have pushed up prices drastically in loss-affected lines to mitigate accelerating claims inflation, while others have exited lines of insurance business or geographies entirely, which in turn has pushed up rates as capacity levels fade.
“These various actions have had a positive impact on the overall rate environment, and we expect the trend to grow stronger in 2021,” explains Haegeli.
Adding: “Following rate improvements in many markets, and particularly in loss-affected segments, Swiss Re expects further rate hardening across all lines of business based on market trends.
“Overall, our analysis shows that the non-life insurance market is set to grow further, driven primarily by exposure growth across the world, especially new risks emerging along with rapid growth in Asia. Against the backdrop of ensuring pricing adequacy, underwriting fundamentals such as risk selection and costing, portfolio steering, appropriate terms and conditions, and contract wordings will be critical to writing future business.”
