Economy less resilient than before financial crisis but insurance resilience rising, finds Swiss Re and LSE

The world’s economy is less resilient today than at the onset of the financial crisis in 2007, Swiss Re and the London School of Economics (LSE) have warned, while also finding that insurance resilience has improved globally this century. According to new macroeconomic indices published by Swiss Re and the LSE, the world economy is less resilient today than back in 2007 when the financial crisis hit. Some 80% of more than 30 countries covered by the indices recorded lower overall resilience scores in 2018 than 2007. This is driven by lack of monetary policy options in developed countries and challenges facing the banking sector. “Considering the 35% probability of recession in the US next year and the global ramifications thereof, it is more important than ever to assess the underlying resilience of our economies and look beyond the traditional GDP measures,” said Jerome Jean Haegeli, group chief economist at Swiss Re. He added that monetary policy buffers against economic shocks are “thinner” today than in 2007, and risk longer recessions. North America maintained its position as the most macroeconomic-resilient region. It still registered decline during the period but exceeded the global average. All other regions recorded lower-than-average economic resilience, and all except Latin America were at lower levels than 2007. The euro region recorded the biggest fall in economic resilience during the period, which Swiss Re said reflects fragile fiscal positions and scarce monetary policy options. “Peripheral countries in the euro area are much less resilient than the core economies, primarily because of lower fiscal resources and weaknesses in the banking sector. However, even the recovery of resilience levels in Germany and France since post-crisis lows has been non-linear and slow,” the report states. In contrast, insurance resilience has improved almost globally this century, according to the new indices from Swiss Re and LSE. They show that the resilience of households against three main areas of risk – nat cats, mortality and healthcare spending – has strengthened since 2000. Swiss Re said improvement in insurance resilience indices, which measure the protection needed against availability, is “notable” in Europe. Advanced economies in Europe have boosted insurance resilience by five percentage points to 65% since 2000. This means insurance and other resources covered two thirds of protection needs from the three main risks. On this metric, Europe is ahead of all advanced economies globally. Swiss Re said the improvement was driven by closing the protection gap from nat cat risks, in particular the increase of flood insurance in Germany and the Flood Re scheme in the UK. Emerging economies in Europe recorded an increase of ten percentage points in their insurance resilience score to 44%. In the US and Canada, almost two thirds of protection needs are covered. The region recorded a two-point increase in the insurance resilience index since 2000. Resilience to nat cat risk was up 11 percentage points to 40%, offset by a fall in mortality protection. Latin America improved insurance resilience by three percentage points in the index to 37%, but fell below the global average of 54%.

Economy less resilient than before financial crisis but insurance resilience rising, finds Swiss Re and LSE

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