Insurance markets holding up despite economic ‘adversity’

Global insurance premiums are expected to grow by 3.4% in 2021, after contracting by around 1.4% in 2020, according to reinsurance giant Swiss Re. In the latest sigma study, “Rebuilding better: global economic and insurance market outlook 2020/21,” the Swiss Re Institute found that global insurance markets have been more resilient than expected to the huge economic shock inflicted by the COVID-19 pandemic.

As Dr. Jerome Haegeli (pictured), group chief economist of Swiss Re, put it: “COVID-19 is causing the worst recession of our lifetimes. Yet in the face of adversity, insurance markets are holding up well as premiums see a V-shaped recovery.” In its June forecast, the Swiss Re Institute anticipated a 2.8% drop in total premium volumes in 2020, but the group now estimates that global non-life premiums will grow by 1.1% this year and recover to an average annual 3.6% growth in 2021 and 2022. The reinsurer also expects premium volumes to be back above pre-pandemic levels by the end of 2021.

Demand for insurance in the advanced markets fared better than expected over the first half of 2020. Advanced market non-life premiums are forecast to grow by close to 3% in both 2021 and 2022, led by advanced Asia and the US, where hard market conditions in commercial insurance will continue to boost premium income. Emerging markets are also expected to see aggregate premium growth of nearly 4% annually, with China remaining the fastest growing market worldwide with premiums up an estimated 10% annually over the next two years.

Haegeli compared the projected premium growth following COVID-19 with the recovery of the market after the global financial crisis between 2007-2008. While the two financial events caused similar contractions, the insurance market is forecast to bounce back much quicker from the COVID-19 crisis because the pandemic-induced recession and financial market volatility is expected to be much shorter.

Non-life insurers are also under pressure to offset the impacts of the low interest rate environment. Low interest rates tend to increase insurers’ underwriting profitability gap, which, in turn, lowers their return on equity. According to Haegeli and the Swiss Re Institute, insurers will try to offset this by continuing to raise premiums and being more selective with their capacity, particularly in commercial lines.

“I think COVID-19 is not a black swan event in the sense that it’s a 1-in-100 or 1-in-200-year event,” Haegeli told Insurance Business. “Yes, it has systemic implications because of how strong the economic impacts have been, but it will also be a wake-up call for more risk awareness, and that’s a positive for the insurance industry. More risk awareness and risk consciousness will mean that societies, and also governments, will recognise the need to have shock absorption and insurance as part of that.

“While there are challenges for the industry, I think this is also a time of great opportunities for insurance markets. I say that because the pandemic has been such an accelerator for the industry to use digitalisation. We’ve also seen expansion in emerging markets, and I’ve no doubt that will continue. China will, by mid-2030, be the largest insurance market globally, which is good for the global economy and good for the global insurance market as a whole.”

There are also opportunities for insurers to ‘green’ the economy, Haegeli added. The insurance sector has a role to play both on the asset side as a long-term investor, but also on the underwriting side by transferring risk. He commented: “We’re a key pillar in terms of building a green economy. It’s really important that policymakers, when thinking about building back better [after the pandemic], consider the important role that insurance companies can and do play. We can utilise that role to make sure we strengthen global recovery and also ‘green’ that recovery.”   

Source: Insurance Business Asia