The resilience of the global economy to geopolitical tensions and the higher inflationary environment has set the scene for growth and better profitability across the insurance sector, according to global reinsurer Swiss Re’s latest World Insurance sigma report.
According to Swiss Re, in 2024, global gross domestic product (GDP) is expected to grow by 2.7% in real terms, which is in line with last year. This growth is expected to persist into 2025 at 2.8% in real terms, as major economies have been more resilient than expected to recent challenges.
This resilience, says Swiss Re, has set the scene for solid growth and improved profitability across the insurance industry, with both the non-life and life segments set to benefit in the current environment.
“The insurance industry has reached a new equilibrium after the challenges of recent years,” says Jérôme Haegeli, Swiss Re’s Group Chief Economist. “The global economy has surprised on the upside, which should drive more demand for insurance. The life sector in particular is one to watch as higher interest rates drive investment income and consumer demand for annuities, giving more people secure retirement incomes.”
In the non-life insurance space, Swiss Re expects profitability to strengthen as insurers have pushed up rates in recent years on the back of the impact of inflation on higher claims costs. Swiss Re expects prices to continue rising for personal lines in 2024 before moderating in 2025. For commercial lines, the reinsurer notes that while still positive, rate increases have decelerated with some markets starting to soften.
Overall, non-life premium volume is forecast to build on the 3.9% growth achieved in 2023, reaching $4.6 trillion in 2024 and $4.8 trillion in 2025, according to Swiss Re.
In the property and casualty space specifically, Swiss Re expects profits to rise this year, noting that industry-wide return on equity (ROE) across eight major markets is at 10% so far this year, up from 6% in 2023. ROE of above 10% is forecast into 2025.
“Commercial insurance accounts for almost half of the total property and casualty market. We expect commercial P&C carriers to maintain profitability in 2024, as rate trends have enabled lines like property to stay sustainably priced. The industry has seen single-digit rate increases for property business written this year. On the casualty side, we observe a trend of general market softening across most long tail lines,” says Kera McDonald, Chief Underwriting Officer, Swiss Re Corporate Solutions.
In the life space, Swiss Re highlights that both top-line growth and improved profitability is expected as a result of the higher interest rate environment. In fact, Swiss Re forecasts 2.9% premium growth for the industry by the end of 2024, reaching a total premium pool of $3 trillion, with similar growth of 2.7% expected in 2025.
The reinsurer forecasts the uptake of annuities and the boost to retirement savings as a significant growth area for life insurance. In the US in 2022, sales of fixed-rate annuities increased 63% and again by 36% in 2023, and Swiss Re expects advanced markets to contribute half of all additional life premiums over the next 10 years, driven by strong growth in annuities.
For 2024, the reinsurer expects the combination of increased premium and higher investment income to boost profitability in the life insurance space, with the operating results across eight top markets increasing 15% for the year.
