Swiss Re’s latest US economic forecasts predict steady global GDP growth and decreasing inflation, but evolving risks could disrupt this outlook, prompting the firm to update its three alternative economic scenarios to reflect current global conditions and enhance the re/insurance industry’s preparedness.
In a recent article, Hendre Garbers, Senior Economist at Swiss Re, outlines these three scenarios—renewed supply shocks, global recession, and productivity revival—and their distinct impacts on the re/insurance sector.
Garbers explains that the “renewed supply shocks” scenario involves escalating geopolitical tensions or trade wars, causing new supply issues and high inflation. This could weaken growth and increase claims, especially in business interruption and life insurance. Supply disruptions might drive up claims, and rising interest rates could heighten lapse risks and impact investment returns. However, this scenario might also boost some non-life insurance demand.
The “global recession” scenario arises if central banks keep interest rates too high for too long, leading to a global downturn and stock market decline. This could significantly reduce insurance demand, particularly for commercial lines, and weaken profitability due to increased defaults and lower investment returns.
On a positive note, advancements in artificial intelligence (AI) could drive productivity gains, with global AI investments projected to reach $200 billion by 2025. This “productivity revival” scenario could boost insurance premiums and investment returns, though new technologies might also lead to severe but less frequent claims.
“Considering shock scenarios, whether adverse or favourable, can be a useful tool to cope with uncertainty and prepare as an industry for unexpected developments,” Garbers concluded.
