Swiss Re’s economists predict “inflationary recessions” hitting major world economies over the next 12-18 months, and while recessions spell less insurance demand and inflation means higher claim costs, inflation will also drive a continued hard market, they say.

The forecasts are set out in a Swiss Re’s annual World Insurance sigma Report titled, “World insurance: inflation risks front and centre,” which also states that global premium volumes will rise past the $7 trillion mark at the end of 2022 for the first time ever.

And while non-life insurers and reinsurers will be most impacted by rising claims cost trends in auto and property lines, rising interest rates are a silver lining to the current inflation crisis, with investment returns set to improve, the report says.

For 2022, the economists estimate strong nominal growth in total premiums (non-life and life) in 2022 of 6.1 percent. In real terms (adjusted for inflation), however, that translates into near flat growth, or 0.4 percent. Still, the report authors expect “more rate hardening in non-life to counter high inflation and strong premium growth in emerging markets.”

“At this level, volumes will be 17 percent higher than at the onset of the COVID-19 crisis,” the report states.

“Insurance remains a growing industry— and reaching the $7 trillion mark for global premiums shows is a major milestone. However, these are not easy times and the insurers will need to keep a close eye on inflation and economic growth, said Jerome Jean Haegeli, Group Chief Economist for Swiss Re.

Non-Life Forecasts

Focusing on non-life alone, the economists foresee inflation of exposure values and rate hardening boosting nominal global premium growth 7.1 percent in 2022, as commercial lines (including workers compensation) expand more than personal lines (including health). Overall non-life premium volume will reach $4.1 trillion.

In real terms, they estimate a 1.1 percent increase in commercial premiums in 2022, while personal lines insurance premiums will grow by only 0.5 percent in 2022—for an overall change of only 0.8 percent. (Editor’s Note: Swiss Re includes the U.S. primary health insurance market in the non-life personal lines tally, accounting for one-third of global non-life premiums, noting that this market is a primary contributor to growth.)

Looking ahead to 2023, a 3.1 percent rise in commercial lines premiums—”supported by rate hardening”—will push overall global premiums up 2.2 percent, the report said, describing this as a “a return to positive growth in real terms in 2023.”

While non-life sector profits will be pressured this year—with a sector 2022 return on equity (ROE) forecast to be in the 5-6 percent range, Swiss Re projects a 6.6 percent ROE in 2023 as underwriting results and investment yields. With interest rates are heading up, investment results will follow over the longer term as non-life insurers’ bond portfolios gradually roll over into higher yields, the report said.

On the underwriting side, the report authors predict a non-life sector combined ratio of 101 for 2022.

China Set To Outpace Advanced Markets

The report also includes premium growth figures for 2021 by region, along with regional estimates for 2022 and 2023. The Swiss Re economists estimate that non-life premium growth (in real terms) will stagnate this year (+0.4 percent) in advanced markets like North America and Europe.

• North America, 0.9 percent
• Europe, -1.4 percent
• Advanced Asia-Pacific, 0.9 percent
• Overall Advanced, 0.4 percent

While advanced markets will return to non-life premium growth in 2023, the jump will remain below-average, estimated to come in at 1.8 percent in 2023 in real terms.

Swiss Re economists expect non-life premium growth in emerging markets to outstrip advanced markets in both 2022 and 2022, estimating real growth of 3.0 percent in 2022 and 4.2 percent in 2023. According to the report, China’s premium growth rates—estimated at 3.7 percent this year and 4.7 percent for 2023—while remaining below pre-pandemic double-digit growth rates, will drive the premium expansion in emerging markets. In motor, Swiss Re forecasts premiums in China will grow by 4 percent and 3 percent in 2022 and 2023, respectively.

Meanwhile, other emerging regions will see slower non-life premium growth rates than China—of 2.0 percent in 2022 and 3.5 percent in 2023.