Global insurance premiums forecast to increase by 3% annually in 2020/2021

Written by Adam Cadle

14/11/2019

Insurance markets continue to support resilience, with global premiums forecast to increase by 3% annually in real terms in 2020 and 2021, despite a slowing world economy.

In its latest sigma, ‘Sustaining resilience amid slowing growth: global economic and insurance market outlook 2020/21’, Swiss Re Institute (SRI) forecasts US and euro area growth next year of 1.6% and 0.9%, respectively, below consensus. The main engine of the global economy, it said, will be emerging Asia, with near 6% growth in both India and China. The contribution of insurance to resilience will be greatest in this region as well. In China, non-life premiums are forecast to grow by 9% in 2020, and life premiums by 11%.

SRI forecasts that China will account for 60% of all insurance premiums in Asia over the next 10 years.

Pricing in non-life insurance has strengthened, driven by rising loss costs in property catastrophe and US casualty, and SRI expects this to continue. Profitability has been trending up in both non-life and life insurance, although this is partly due to realised gains from the investment portfolio. However, in the case of a recession, demand for insurance typically falls with economic slowdown, and profitability would also be impacted. For example, for the non-life sector overall, the analysis shows that a 50 basis-point drop in the yield curve, a plausible scenario in current low market yield levels, would widen the estimated existing sector margin gap of 6-9% of premiums by 1.2-1.5%.

The experience of insurers in Japan in three decades of low growth and low interest rates offers pointers for peers in other regions facing a similar scenario of economic inertia. In search of yield, Japan’s insurers have invested much more of their assets abroad. Non-life insurers have also turned more aggressive in their investment strategy by significantly reducing cash and reserves, and increasing their exposure to equities. On the life side, insurers have also changed their product mix to write more higher-margin health products and less interest rate sensitive savings products.

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