Despite the global economy’s growth slowing down in 2020 and 2021, insurance premiums are expected to increase worldwide, with emerging Asian markets serving as engines of growth, according to Swiss Re.
In Swiss Re Institute’s latest sigma report, titled ‘Sustaining resilience amid slowing growth: global economic and insurance market outlook 2020/21’, the reinsurance giant forecast US and European economies to grow 1.6% and 0.9%, respectively, next year.
Meanwhile, the main engine of the global economy will be emerging Asia, with near 6% growth in both India and China. According to the report, 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%.
Read more: China leading charge in global premium boost
“Our outlook on global growth has deteriorated from a year ago,” Jerome Jean Haegeli, group chief economist at Swiss Re, says. “The US-China trade conflict has been more far reaching than anticipated. In a broader sense, geopolitical developments have not improved. Rather, we have seen more polarisation across the world, all of which has added to the environment of uncertainty, including for business. Going forward, the US-China trade conflict poses the top risk to global growth.”
Furthermore, Swiss Re said in the report that the Euro region is at risk of ‘Japanification’, which is a term economists use to describe a market’s long-running battle against deflation and lacklustre growth, similar to what Japan has been experiencing for almost 30 years.
The report said that low and negative interest rates, such as those encountered by mature Asian economies such as Japan and South Korea, are here to stay. As such, a new policy mix is needed, including fiscal spending on infrastructure and sustainable investments.
Pricing in non-life insurance has strengthened, Swiss Re said, driven by rising loss costs in property catastrophe and US casualty, and this trend is expected to continue. Profitability has been on the upswing in both non-life and life insurance, although this is partly due to realised gains from the investment portfolio, it added. However, in the case of a recession, demand for insurance typically falls with economic slowdown, and profitability would also be impacted.
“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,” the report said. “In search of yield, Japan’s insurers have invested much more of their assets abroad.”
Non-life insurers have invested more aggressively by increasing their exposure to equities and cutting down on cash and reserves. Meanwhile, life insurers have changed their product mix to write more high-margin health products and less interest-rate sensitive savings products.