A new sigma study by Swiss Re is forecasting global insurance premium growth of 3.4% in real terms in 2021, following a contraction of 1.4% this year due to the impact of the COVID-19 pandemic.
The decline was less severe than the 2.8% drop predicted by Swiss Re earlier this year, and the reinsurer believes that premium growth will recover swiftly over the next two years, supported by continued rate hardening.
“Amid the economic shock inflicted by COVID-19, global insurance markets have been less severely impacted than expected in the Swiss Re Institute June 2020 forecast,” the sigma report stated.
Specifically, global non-life premiums are actually expected to grow by 1.1% this year and to recover to an average annual 3.6% growth in 2021 and 2022, with volumes expected to be back above pre-pandemic levels by the end of next year.
Swiss Re forecasts that advanced market non-life premiums will grow by close to 3% over the next two years, led by advanced Asia and the US, where a hard market in commercial insurance will boost premiums.
But China will remain the fastest growing market with premiums up an estimated 10% annually over the next two years, largely thanks to a strong health business. The other emerging markets will see aggregate premium growth of nearly 4% annually.
The life market was hit harder by this year’s economic downturn, Swiss Re notes, meaning global premiums may contact by around 4.5% against a backdrop of rising joblessness and less purchasing power.
But even this is a smaller drop than the 6% decline that Swiss Re forecast in June, mainly thanks to market growth in the US, which was stronger than expected.
The life sector has been hit particularly hard by the low interest rate environment, but nevertheless Swiss Re predicts a return to 3% growth in 2021, led by the emerging markets, primarily in Asia, where premiums are forecast to increase by 6.9% next year.
Growth and profitability will also by supported by pricing increases, Swiss Re noted, which have continued to increase over the course of the year and will likely be ongoing through next year.
“Market conditions from both the demand and supply sides point to continued pricing strength,” said Andreas Berger, Chief Executive Officer of Swiss Re Corporate Solutions. “The low interest rate environment and the ongoing social inflation in the US will be key drivers of market hardening.”
While the re/insurance industry may have fared better than expected against the pandemic, Swiss Re’s outlook for the larger global economy is more bleak.
The impact of the pandemic on individual countries will vary depending on its ability to absorb shocks and its government policy, Swiss Re said, with the UK, Japan and the US set to see the biggest hit to fiscal buffers among the larger economies.
Income inequalities will also widen as further many lower paid jobs were cut in the downturn and labour markets will be more severely impacted than official data indicate.
“For sustainable economic recovery, we need a policy reset. Public policy should focus on areas such as infrastructure, technology and climate. Building new sustainable infrastructure will have a significant impact on GDP growth,“ said Jerome Jean Haegeli, Swiss Re Group Chief Economist.
“In addition to smarter spending, policymakers should make more use of public-private partnerships and establish the operational and regulatory frameworks to enable greater participation of private-sector finance, including insurers’ assets, in the real economy,“ Haegeli said.