Resilience of the global economy benefits the insurance sector

Resilience+of+the+global+economy+benefits+the+insurance+sector
Impact of Interest Rates and Economic Growth on the Insurance IndustryImpact of Interest Rates and Economic Growth on the Insurance Industry According to Swiss Re’s Sigma report, the insurance industry anticipates favorable growth prospects amid geopolitical tensions and rising inflation. Life Insurance Sector The report highlights significant benefits for life insurers as interest rates increase. Jerome Haegeli, Group Chief Economist at Swiss Re, explains that higher interest rates lead to enhanced returns on capital and increased consumer demand for annuities, providing financial security in retirement. Premiums and Profitability Life insurers are projected to witness a premium growth of 2.9% to $3 trillion in 2024, followed by a 2.7% increase in 2025. This, coupled with higher returns on capital, is expected to drive profitability in 2024, with an anticipated 15% improvement in operating income in key markets. Non-Life Insurance Sector Non-life insurance (property and casualty) also exhibits a positive outlook. Premiums are anticipated to continue rising this year and stabilize in 2025, rising from $4.6 trillion in 2024 to $4.8 trillion the following year. P&C insurers are poised to enhance their profitability in 2024, with return on equity projected to increase from 6% in 2023 to 10% in 2024 and further rise in 2025. Market Dominance The United States remains the dominant insurance market globally, accounting for 45% of total premium volume. The next largest markets are China (10%), the United Kingdom, and Japan (both 5%). Switzerland ranks 17th with a 1% market share.

Life insurers in particular will benefit from higher interest rates. However, the overall outlook for the entire sector is also positive, according to Swiss Re, one of the world’s leading reinsurers, in its Sigma report.

Despite geopolitical tensions and higher inflation, the global economy has shown remarkable resilience, creating favorable conditions for the insurance industry to expand premium volume and increase profitability. This positive outlook for the industry is noted in the latest Sigma report from the Swiss Re Institute.

Economists at the reinsurer expect the global economy to grow by 2.7 percent in real terms in 2024 and 2.8 percent in 2025. The entire insurance industry will benefit from this, but especially the life insurance sector due to a special factor. Jerome HaegeliGroup Chief Economist at Swiss Re, said: “Higher interest rates are driving higher returns on capital and increased consumer demand for annuities, enabling more people to enjoy a secure retirement provision.”

Higher premiums, better profitability

Life insurers are expected to grow premiums by 2.9 percent to $3 trillion in 2024, with an expected increase of 2.7 percent for 2025. The Swiss Re Institute predicts that the combination of higher premiums and higher returns on capital will lead to greater profitability in 2024, with operating income in the eight largest markets expected to improve by 15 percent.

The outlook is also positive for the non-life insurance sector (property and casualty insurance). The trend towards higher premiums will continue this year and is expected to level off in 2025. Premium volume is expected to increase from $4.6 trillion in 2024 to $4.8 trillion the following year.

Dominance of the US market

P&C insurers can also improve their profitability in 2024. Return on equity (in the eight largest markets), which was 6 percent last year, is expected to rise to 10 percent in 2024 and even higher in 2025.

The United States is by far the most important insurance market, accounting for 45 percent of total premium volume. The next three largest markets are China (10 percent), the United Kingdom and Japan (each with 5 percent). Switzerland is in 17th place with a market share of 1 percent.

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