Global economy and insurance market forecast for 2024-2025
Global economic growth will slow in 2024 due to tightening monetary policy and weakening growth rates.
The outbreak of war in the Middle East is raising risks for the world’s economies, with the US continuing to grow, while Europe is stagnant, if not already in recession in some countries, and China is struggling with structural problems in domestic growth, the Swiss Re Institute said in a report.
“Fading economic tailwinds and geopolitical uncertainty reinforce the primary insurance industry’s important role in risk transfer,” said Jérôme Jean Hegely, Swiss Re Group Chief Economist.
Macroeconomic environment and prospects
Economists forecast global real GDP growth of 2.2% in 2024 and a recovery to 2.7% in 2025, supported by lower inflation and central bank interest rates. In developed markets, however, both inflation and interest rates are likely to remain higher than expected this decade, with risks tilted to the upside.
Global CPI inflation will ease to 5.1% in 2024 and 3.4% in 2025, but price pressures are likely to be volatile. A slower disinflation process increases the cost of economic production and the risk of prolonged stagnation. A sharp rise in long-term US sovereign bond yields signals a long-term regime change, and insurers have raised their yield forecasts. Structurally higher real interest rates can expose the instability of public and private debt balances.
Geopolitics plays a dominant role in shaping perspectives. The war in Israel adds new, potentially non-linear, downside risks, with potential energy price shocks a key channel of risk to the global economy.
Forecast of real GDP growth, inflation and interest rates for selected regions, 2022–2025
An adverse scenario in which the conflict spreads to major regional oil producers could add 2.4 percentage points to the global inflation outlook. A stronger industrial policy emerged with long-term consequences.
Big government initiatives to boost sectors from semiconductors to clean energy could structurally add to inflation, fiscal deficits and interest rates if implemented.
Insurance market forecast for 2024-2025
The insurance industry is a key partner for most projects, and analysts see potential for growth in commercial lines of business from liability insurance to property, engineering, trade credit and surety as these initiatives take shape.
Global general insurance premiums real growth rates by region
Slowing economic growth and increased geopolitical uncertainty worsen the outlook for the insurance industry. Swiss Re forecasts overall global real premium growth of just 2.2% annually over the next two years, below the pre-pandemic trend (2018-2019: 2.8%) but higher than the average over the past five years (2018 –2022: 1.6%).
Profitability is recovering and underwriting gaps are closing as investment returns rise thanks to high interest rates, but we estimate the industry will not earn its cost of capital in 2024 or 2025 in core markets. Events such as war in the Middle East can harm insurers’ capital positions through channels such as inflation and market volatility.
Dynamics of payouts in the risk insurance sector on world markets
Risk accounting, in addition to life insurance, faces the complex dynamics of insurance payments, with increasing frequency and severity of claims, despite a decrease in economic inflation. The rate of growth of requirements in the field of liability calls into question the possibility of insuring these risks.
Analysts estimate that insured losses from natural disasters will reach $100 billion in 2023, the fourth year in a row and the sixth year since 2017 (adjusted for inflation).
“We expect further challenging market conditions at least through 2024. In the property and casualty (P&C) segment, we estimate global real premium growth of 3.4% in 2023, exceeding our forecast for 2024-2025 (2 .6%). This reflects a significant re-estimation of risk, particularly in claims-related lines. We expect health premiums to return to 1.5% growth in 2024-25 (2023: -0.6 %)”, noted Jerome Jean Hegel.
Life and health insurance portfolio yield and interest rate forecast
In life insurance, higher interest rates are improving demand for endowment and annuity products, while higher investment returns are expected to will increase profitability in 2024 and 2025. Life insurance premium growth is forecast to average 2.3% in 2024-2025 (2023: 1.5%). The outlook for growth in the life savings market over the next decade is significantly higher than it has been over the past 20 years.
Alternative economic and insurance scenarios
The conflict in the Middle East adds stagflation risk, reminding us of the importance of monitoring alternative economic scenarios to our baseline. Analysts monitor two negative scenarios: “stagflation in the style of the 1970s” and “severe global recession.”
In stagflation, the combination of high inflation, high interest rates, and weak growth will have a negative impact on the efficiency of insurance underwriting, which will greatly affect liquidity, capital, and equity. A severe global recession will lead to solvency concerns due to negative investment returns and falling premium growth. The upside scenario is less likely than the two key downside scenarios combined.
Economic and insurance forecasts
US real GDP growth is projected to slow to around 1.1% in 2024 and 1.9% in 2025. Europe’s economic stagnation is likely to continue in 2024-2025, with real GDP growth of only 0.3% in 2024. China’s emerging markets will face a challenging environment in the next two years after strong growth this year.
“Slight” disinflation has ended in the US and Europe, and a gradual sharp decline in CPI inflation is expected. Central bank rates will remain restrictive for the next two years. Unless growth slows sharply, Swiss Re expects a rate cut of 75 basis points from both the US Federal Reserve and the European Central Bank next year.
The nominal yield on 10-year US Treasury bonds will average 4.2%, which is 40 basis points higher than before.
Monetary policy in developed markets is increasingly diverging from that in emerging markets, which is rapidly easing.
In 2024, risk insurance premiums will grow by 1.6% in real terms worldwide, following a 1.4% real growth in 2023. In the property insurance sector, global real premiums are forecast to grow by 3.4% in 2023, subject to significant risk repricing.
Emerging markets are key to global insurance premium growth rates, with China averaging 6% in 2024-2025.
The profitability of the risk insurance sector will increase to around 10% return on equity (ROE) in both 2024 and 2025, well above the 10-year average of 6.8% (2014-2023).
The underwriting yield gap in the 8 key risk insurance markets is estimated at 2% in 2024-2025 (2023: 4%). Life insurers’ aggregate ROI in core markets will be approximately 3.3% in 2023 (2022: 3.1%).
Accumulated life insurance premiums are projected to grow 2.7% annually over the next decade to reach $4 trillion by 2033.