Global insurance market growth forecast for 2024-2025
Overall global insurance premium growth is forecast at 2.2% annually on average over the next two years, higher than the five-year average (2018-2022: 1.6%), according to a Swiss Re Institute report.
After a solid 2023 driven by strong US economic growth, the global economy is expected to slow by 0.4 pp. to 2.2% real GDP growth in 2024. Major economies diverge as the US continues to grow, Europe stagnates and China struggles with structural domestic growth. The conflict in the Middle East increases the risks to the macroeconomic outlook. Strengthening the financial position of the global insurance industry offers a welcome boost against heightened macroeconomic and geopolitical risks.
- With investment income growing and tough market conditions remaining, the insurance industry is increasing profitability even more
- Geopolitics will play a dominant role in shaping the economic environment, with global real GDP growing at 2.2% in 2024, up from a forecast 2.6% in 2023, before picking up to 2.7% in 2025.
- Inflation and interest rates in developed markets are expected to remain higher over the next decade, with global inflation expected to ease to 5.1% in 2024 and 3.4% in 2025.
Jérôme Jean Hegely, chief economist of the Swiss Re group, says that fading economic tailwinds and geopolitical uncertainty reinforce the primary insurance industry’s important role in risk transfer. “While the sector will continue to increase its profitability, mainly due to improvements in risk-adjusted pricing, driven by investment, capital gains in the insurance market in 2024 or 2025 are not expected to materialize in most markets as economic inflation continues to weigh on insurance payments”.
Real growth rates of the total insurance premium in key insurance markets
According to the Swiss Re Institute, labor market developments have been the main driver of resilience this year, with unemployment at historic lows in the US (3.9% as of October) and the Eurozone (6.5% as of September) despite labor force growth . This has strongly supported consumer demand, particularly in the US, where consumer spending is expected to grow by 2.4% in real terms in 2023. However, according to the Sigma report, the resilience of the labor market is not a sign of recovery, but a reminder of the uneven lag of monetary policy, which often takes longer to affect labor markets than other parts of the economy.
The risk of a recession is higher in Europe than in the US
The start of the war between Israel and Hamas in October 2023 added risks to the global economy. The combination of above-target inflation and near-term economic resilience in some advanced economies means that central bank interest rates will remain restrictive for at least the next two years.
Charlotte Muller, Swiss Re’s chief economist in Europe, believes that the full impact of higher interest rates on the real economy has yet to be seen. “For companies, higher capital and labor costs will further reduce profit margins and may lead to layoffs. Europe’s economy will be at its worst for the next two years (some major economies, such as Germany, are already shrinking).”
Investment performance is a more important component of the insurance industry
In the property and casualty insurance sector, significant repricing of insurance risks in 2023 will lead to global premium growth of 3.4% in 2023 and is forecast to moderate to 2.6% in 2024 and 2025. The impact of economic inflation on losses is According to sigma, non-life insurance profitability will increase to approximately 10% return on equity (ROE) in both 2024 and 2025, well above the 10-year average of 6, 8%.
Growth rates of global non-life insurance premiums
Real growth of insurance premiums for key types of insurance
The improvement in market performance is due to higher investment returns, given the high interest rates, as well as better underwriting results due to higher rates in both corporate and retail insurance. Current investment returns in the insurance segment exceeded 3.3% in 2023 and will increase to approximately 3.7% in 2024 and 3.9% in 2025. Underwriting is also supported by lower inflation and improved conditions, which are expected to ease further. the impact of inflation on claims costs.
Loss dynamics are a key issue in risk insurance in key markets
Development of the life insurance market
Adjusting to higher interest rates is helping the global life insurance industry. The Swiss Re Institute predicts significant growth in demand for life savings products in the next two years due to the growth of the global middle class, where people are increasingly turning to insurance companies to plan for their retirement age.
Basic economic factors, including a growing middle class and increased risk awareness, will continue to support a modest recovery in risky products. Meanwhile, consumers’ willingness to save more due to fear of future income, low bank interest rates and political support for private pensions are likely to boost sales of savings products. In other emerging markets, life insurance premiums are expected to grow significantly due to current low penetration, regulatory support and a growing middle class.
Global life insurance premium growth rates in real terms, actual and forecast
According to the Sigma report, premium growth is on a steady recovery path with 1.5% of total real global premium growth in 2023, following a contraction of 0.7% in 2022 and a still higher premium growth forecast over the medium term (2024-2025 ) by 2.3%. This is mainly driven by emerging markets (+5.1%), developed insurance markets will also show slight growth (+1.3%).
Operating and investment profitability of life insurance
In 2022, insurers received premiums from accumulated insurance in the amount of about 2.3 trillion dollars. According to forecasts of the Swiss Re Institute, in 2033 this indicator will increase to 4 trillion dollars, that is, the average annual growth rate in real terms will be 2.7%. This would increase premiums by $1.7 trillion over the next 10 years, or 65% for new companies over the past two decades.
The Swiss Re Institute’s growth forecast for the next decade has increased significantly, largely because the last 20 years have been adversely affected by the global financial crisis, the era of low interest rates and the pandemic.
More than half (52%) of the additional global premiums received in 2024-2025 will be from emerging markets (including China), compared with 45% over the past five years. Analysts see China as the driver of emerging market growth, with 68% of additional premiums over the next two years.