Global economic and insurance market outlook 2024‒25 – Swiss Re Sigma6/23
We expect the world economy to slow in 2024 as headwinds from the cumulative monetary policy tightening intensify and the growth impulses of 2023 fade.
The outbreak of war in the Middle East heightens the risks to the outlook. Major economies are diverging: the US continues to grow, while Europe is stagnating, if not already in recession in some countries, and China is grappling with structural domestic growth challenges. We forecast 2.2% global real GDP growth in 2024 before a rebound to 2.7% in 2025, supported by lower inflation and central bank interest rates.
Still, in developed markets both inflation and interest rates will likely stay higher than previously anticipated in this decade, and risks are skewed to the upside. We expect global CPI inflation to moderate to 5.1% in 2024 and 3.4% in 2025, but price pressures will likely be volatile. A slower disinflation process increases the cost to economic output and the risk of a protracted stagnation. A sharp rise in long-term US sovereign bond yields this autumn signals a durable regime shift, and we have raised our yield forecasts. Structurally higher real interest rates may expose fragilities in public and private debt balances.
More dominant role from (geo)politics in driving the outlook
The war in Israel adds new, potentially non-linear, downside risks, with potential energy price shocks the key risk channel to the global economy. An adverse scenario in which the conflict expands to include major regional oil producers could add 2.4 percentage points (ppts) to our global inflation forecast. More assertive industrial policy has emerged, with long- term implications.
Major government initiatives to galvanise sectors from semiconductors to clean energy may add structurally to inflation, fiscal deficits and interest rates if implemented. The insurance industry is a key partner to such projects, and we see the potential for growth in commercial lines of business from liability to property, engineering, trade credit and surety as these initiatives take shape.
Primary insurance impact
The economic growth slowdown and elevated geopolitical uncertainty dampen the outlook for the primary insurance industry. We forecast total global real premium growth at only 2.2% annually on average for the next two years, below the pre-pandemic trend (2018‒2019: 2.8%) but higher than the average of the past five years (2018‒2022: 1.6%).
Profitability is recovering and underwriting gaps closing as investment returns increase with high interest rates, but we estimate the industry will not earn its cost of capital in 2024 or 2025 in major markets. Events such as the Middle East war may hurt insurers’ capital positions through channels such as inflation and market volatility.
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Frequency and severity on the increase
Non-life insurance is confronting challenging claims dynamics, with rising frequency and severity of claims despite declines in economic inflation. The pace of claims growth in the liability line of business challenges the insurability of those risks. We estimate that natural catastrophe insured losses are on track to reach USD 100 billion in 2023, for a fourth consecutive year, and the sixth year since 2017 (inflation-adjusted). We anticipate further hard market conditions in 2024 at least. In the
Property and Casualty (P&C) segment we estimate 3.4% real premium growth globally in 2023, stronger than our forecast for 2024‒25 (2.6%). This reflects a significant repricing of risk, especially in claims-impacted lines. We expect health premiums to return to growth at 1.5% in 2024‒25 (2023E: ‒0.6%). In life insurance, higher interest rates improve demand for savings-type products, continue to support bulk annuity transfers, and higher investment yields are expected to boost profitability in 2024 and 2025. We forecast 2.3% life premium growth on average for 2024‒25 (2023E: 1.5%). Our forecast for life savings market growth over the next decade is significantly higher than in the past 20 years.
Risk of stagflation
The Middle East conflict adds stagflationary risk, a reminder of the importance of monitoring alternative economic scenarios to our baseline. We track two negative “tail risk” scenarios: “1970s style stagflation” and a “severe global recession”. Under stagflation, the combination of high inflation, high interest rates and weak growth would stress underwriting performance, with liquidity, capital, and equity all heavily impacted. A severe global recession would raise solvency concerns through negative investment returns and falling premium growth.
The probability of an upside scenario is lower than our two key downside scenarios combined, in our view.
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