Rising inflation will support market hardening, says Swiss Re

Higher inflation and ongoing supply chain disruption are key risks for the global economic recovery and will support further insurance market hardening, Swiss Re warned at a media briefing. Jérôme Haegeli, Swiss Re group chief economist, said the economic outlook is “fragile and uneven”, with inflation likely to remain at higher levels than expected. Swiss Re is forecasting a slowdown in global economic growth from 5.6% in 2021 to 4.1% next year and 3% in 2023. “The best of the cyclical rebound is now behind us,” said Haegeli. He added that the recovery would be a “marathon not a sprint”. Inflation remains the number one macro risk, according to Haegeli. Consumer price inflation is expected to hit 5% in the US next year, 3.8% in the UK and a more moderate 2.6% in Europe, according to Swiss Re’s forecast. Higher-than-normal inflation is being stoked by supply chain disruption and labour shortages, as well as the largest fiscal stimulus outside of war time, said Haegeli. “Inflation is the key risk to watch,” he said. “Inflationary forces will probably stay longer than expected and I would expect inflation to be higher for longer… Forecast inflation will be structurally higher post-Covid-19,” he added. Higher inflation is likely to feed through to higher claims inflation for insurers, which would support rate increases and put pressure on insurer profits, continued Haegeli. “Market conditions suggest that positive pricing momentum will continue across all lines and regions. Inflation-driven higher claims development in all lines of business, continued social inflation in the US and persistently low interest rates will be the main factors for market hardening,” Haegeli writes in Swiss Re’s latest sigma report. Property-catastrophe rates are forecast to improve in 2022 following a year of above-average losses. Natural catastrophe losses are on course to reach $100bn in 2021, only the fourth year to do so, said Haegeli at the media briefing. Casualty rates should also be stronger next year due to ongoing social inflation. “Social inflation is not something we can, and should, expect to go away. CPI [inflation] will stay high and this will keep claims inflation higher for longer,” added Haegeli. Swiss Re already expects above-trend growth in global insurance premiums of 3.4% in 2021, and more than 3% for the next two years. This will be supported by heightened risk awareness in wake of the pandemic and continued strong rate hardening. In the EMEA region, premiums grew almost 5% in 2021, but growth is expected to fall back to 2% in 2022 and 2023. The global insurance market is set to exceed $7trn in premiums for the first time by mid-2022, earlier than expected. In particular, growth in non-life insurance is being underpinned by continued rate hardening in commercial lines, which is expected to continue into 2022 and broaden into personal lines, according to Haegeli. Global non-life premiums are predicted to grow by 3.3% in 2021, 3.7% in 2022 and 3.3% in 2023. Despite the threat of higher inflation and claims inflation, insurer profitability will continue to improve into 2022, driven by the broadening hard market, said Haegeli. “Claims inflation is a drag on profitability but it can act as an uplift for prices,” he said. Swiss Re also warned that income inequality widened during the pandemic. There is also increased economic divergence across regions and between emerging and mature markets, it added. While the economic recovery in 2021 has been “stellar” and “better than expected”, it was “cyclical, not structural”, said Haegeli. He said there is a need to build economic resilience against future shocks as global economic resilience is now weaker than immediately before the pandemic, which was already lower than pre-2008 financial crisis levels. According to Swiss Re, climate change is the top long-term risk, while protracted supply-side issues are the biggest risk for the next 12 to 18 months. Supply chain issues and bottlenecks are “not over yet” and recent disruption showed the need for increased levels of protection, said Haegeli. Swiss Re predicted that weather-related losses will increase by between 90% and 120% by 2040, and noted that just 76% of global catastrophe losses are insured.

Rising inflation will support market hardening, says Swiss Re

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