Global economic growth supports premium growth but is slowing, says Swiss Re

Strong global economic growth during the next two years will support global insurance premiums, for both non-life and life, growing by more than 3% annually in the next two years in real terms, a one-percentage point increase from 2018, according to Swiss Re. Most demand will come from emerging Asian markets, where premiums are forecast to increase at more than three times the global average rate, by about 9%. However, Swiss Re warns that global economic growth is slowing and momentum has peaked, and the world economy remains ill prepared for a global recession. The Swiss Re Institute's latest sigma report, Global Economic and Insurance Outlook 2020, says innovation in insurance will expand the boundaries of insurability and further drive premium growth, as well as helping to improve global resilience by narrowing existing insurance protection gaps. “The global economy has been performing well and growth will remain solid,” commented Jérôme Jean Haegeli, chief economist at Swiss Re. “However, the best is probably over. Cyclical momentum is positive but we expect real GDP to slow by about one to two percentage points in most parts of the world over the next two years. This also takes into account mounting structural challenges to growth, such as higher debt burdens, reduced savings [because] of ageing societies, and low productivity.” The emerging markets, particularly in Asia, will continue to grow. Aggregate emerging-market growth is expected to strengthen to about 4.9% annually during 2019 and 2020, states the report. The forecasts are based on anticipation of economic recovery in countries that have struggled in recent years, including Argentina, Brazil, South Africa and Turkey. Emerging Asian markets will continue to outperform, with the Chinese and Indian economies forecast to grow by more than 6.0% annually during the next two years. The report notes that downside risks to global growth have increased of late. In the medium term, the record low level of unemployment in the US will likely lead to higher wage gains and higher risk of overheating in the US, with excessive tightening of financial conditions leading to greater market volatility and a slowdown in economic activity. Longer term, it says the main risk is escalation of current trade tensions between the US and China into a global trade war. The sigma report states that the global economy has less capacity to absorb shocks, given the lower growth trends when compared to ten years ago, as well as higher debt burdens, weaker financial market structures and a move to less openness. The Swiss Re Institute says it encourages a move towards more private capital market solutions to remedy the situation. “Insurance is a central pillar of resilience and with a more supportive policy environment, insurers will be better able to expand their risk-absorbing capacity and long-term investment activities in resilience-building projects such as infrastructure,” notes the report. It estimates that the global re/insurance sector has total assets under management of about $30trn – roughly three times the size of China's economy. Swiss Re says this large asset base should be fully mobilised as a “risk absorber”. “With the global economic power shift from west to east continuing unabated, China and emerging Asia in particular will be the main source of insurance demand in the coming years,” Mr Haegeli said. “Based on our models, we project that in US dollar terms, the growth rate of insurance premiums in emerging Asia will be more than three times that of the world average over the next two years.” Swiss Re says that according to sigma data, China's share of global premiums increased from 0.8% in 2000 to 9.7% in 2017, and is forecast to expand to 16% by 2028. The report adds that innovation in insurance will narrow protection gaps. “Product innovations such as parametric insurance, for example, are expanding the scope of insurability for natural catastrophe risks that have previously been difficult to insure. Technology will support the innovation. For example, businesses are seeking covers for previously uninsurable exposures like earnings and cashflow losses due to contingent business interruption, cyber, product recall and weather and energy price risks. The evolution of double-trigger indemnity structures, and data and modelling advances, is allowing insurers to develop ever-more innovative covers for such exposures,” says Swiss Re.

Global economic growth supports premium growth but is slowing, says Swiss Re

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