Europe

Turbulence after lift-off: global economic and insurance market outlook 2022/23

Image

The world economy is making a strong cyclical recovery from the COVID-19 pandemic, but it is not a smooth one

This sighma report can be downloaded here

Our latest sigma research forecasts real economic growth of 5.6% this year, but growth will slow to 4.1% in 2022 and 3.0% in 2023 as global supply chain issues, labour shortages and high energy prices persist. Our number one near-term macro risk is inflation, which stems from these same factors.

 

What is needed is policy support to enable a structural recovery, and we identify three "Ds" – structural trends of divergence, digitalisation and decarbonisation – that will shape the long-term outlook.

The growing divergence within and between countries in economic recovery, wealth, income and socio-economic opportunity is a cause for concern. These divergences make the recovery fragile. Digitalisation is likely to be key to higher productivity growth and we believe swift progress is vital. Finally, rapid progress on decarbonisation is imperative as extreme weather events worldwide this year indicate that climate risks are materialising.

"We have a unique opportunity to build a better market system. For this, all stakeholders will need to accept and internalise the costs of climate change, and policymakers take into account the distributional effects of their economic policies. This will help to create the transition we need for a sustainable path to a net-zero economy by 2050," Jerome Haegeli said.

We are positive on the outlook for global insurance premiums, expecting above-trend growth of 3.3% in 2022 and 3.1% in 2023. We see rising risk awareness in both life and non-life insurance, among consumers and businesses, following the shock of COVID-19. The ongoing rate hardening in non-life insurance commercial lines will provide further support. The global market is expected to exceed USD 7 trillion in premium terms for the first time by mid-2022, sooner than we last estimated in July.

"Market conditions suggest that positive pricing momentum will continue across all lines and regions. Inflation-driven higher claims development in all lines of business, continued social inflation in the US and persistently low interest rates will be the main factors for market hardening," said Jerome Haegeli.

The past year has also taught us important lessons. The crisis has once again demonstrated the utility of the re/insurance industry as a vital risk absorber; awareness of climate risk has been heightened by extreme weather events, adding urgency to the race to "net-zero". We have learned how much consumers welcome digital insurance, and to be aware of how rising inequality may worsen social inflation.

The key takeaways of this sigma are

  • The cyclical recovery in global economic growth will slow as supply-side shocks persist, and monetary policy becomes less accommodative. Our GDP growth forecasts are below-consensus.
  • We forecast above-consensus average annual inflation globally in 2022, including 5.0% in the US, 2.6% in the euro area and 3.8% in the UK, above central banks’ targets of 2%. Cost pressures are starting to feed into harder to reverse prices such as rent and wages.
  • We estimate global real insurance premiums to grow by 3.4% in 2021, taking total global direct premiums written to 8% above the 2019 level.
  • Insurance profitability should improve in 2022 after a challenging 2021 as the industry absorbs COVID-19-related claims, above-average catastrophe losses and high inflation.
  • Non-life underwriting profitability should recover from 2022 as insurers internalise expectations of higher inflation, and rates in commercial lines rise again.
  • For life insurers, advances in COVID-19 vaccinations should also strengthen profitability from 2022, after a year of high mortality in 2021. In Brazil for instance, the life insurance benefit ratio in April 2021 was more than double that of April 2020.
  • Investment returns will likely be challenged by ongoing low interest rates that do not fully compensate for inflation, making underwriting discipline crucial.
Trending
Share this Post:
Posted by IRL Staff

Advertisement

ad ad

Related articles

issue

My Story – Chapter 2

This starter position in the Research & Planning (R&P) Department was marked with moments of anxiety and frustration – my ‘class’ included two other rookies who seemed to catch on faster – this...

Neil Robertson Appointed Group CEO of Canopius

LONDON – 5th January 2022 – Canopius Group, a leading global specialty (re)insurer, today announces that Neil Robertson has been appointed as Group Chief Executive Officer. Neil joined Canopius...

RT ECP’s Annual Market Update Identifies Strategies for Overcoming Construction Industry Risks & Challenges

Hamilton, New Jersey (January 6, 2022) – RT Specialty’s Environmental and Construction Professional (RT ECP) Practice recently released its 2022 Market Update to help agents and brokers...
issue

To Reduce Privacy Risks: Educate Our Youth

Fabrice de Waal, who, as CEO of the DDW Group from Amsterdam, sees with his own eyes the risks 'we' run when there is little regard for safeguarding one’s personally identifiable information. His idea?...

Trade disruption insurance and supply chain resiliency

By Oliver Lombard & Jamie Kearney, Miller Insurance (London) Aside from the clear pandemic-induced impact on global supply chains, the frequency and severity of so called “Black swan events”...

My Story – Chapter 1

As I write about my career in the insurance business, some of it will be uncomfortable because times have changed and what we did in the 1970s & 80s would be frowned upon today.  But we did what...