Swiss Re forecasts global insurance market growth in 2020 and 2021

Insurance markets will continue to grow in 2020 and 2021 driven by “very strong” demand in emerging Asia, despite a slowdown in the global economy, according to the latest forecast from the Swiss Re Institute (SRI).

Research published today in SRI’s Sigma report forecast that global insurance premiums will increase by 3 percent a year, for the next two years. Growth in emerging Asia, particularly in China and India, will be the main driver for premium increases in non-life and life. In China, non life premiums are forecast to grow by 9 percent in 2020 and by 11 percent in life.

The report predicts a slowdown in US economic growth to 1.6 percent in 2020 and 0.9 percent in the Euro area, figures which are both “below market consensus forecasts” of 1.8 percent and 1.1 percent respectively. In contrast, SRI forecast growth in China will be 6.1 percent, higher than the market consensus forecast of 5.9 percent, while SRI expects growth in India to be around 6 percent as well.

Jerome Haegeli, group chief economist at Swiss Re, said that the main risk to global growth is the escalation of the US/China trade war, which SRI calculates has a 30 percent likelihood of happening. Another major risk for global growth is the risk of “Japanification” in the euro area, which refers to the deflation and collapse in demand Japan saw in the 90s, which led to the country’s ‘lost decade’.

On top of this, the probability of a US recession remains at 1 in 3 (35 percent), unchanged from earlier this year, he said.

SRI said that the environment of worsening trade and geopolitical developments over the last year had caused it to lower its growth forecasts for advanced markets.

Haegeli also said that low and negative interest rates are “here to stay”, adding that decisive monetary policy action was needed, which could include a new mix of fiscal spending in infrastructure and sustainable investments.

However, Haegeli said: “In the long term, negative interest rates are negative, leading to higher household savings, misallocation of capital, higher debt levels and leverage and lower bank, and insurer, profitability.

“In the short term, the low growth environment does not necessarily mean financial markets will perform badly, not while central banks remain in accommodation mode. Long term loose monetary policy, however, raises the spectre of financial instability.”

But insurance is a key contributor to economic resilience “more so when growth slows, when households and businesses have access to financial compensation for loss events”, SRI said.

Encouragingly, the global insurance sector “continues to grow at trend”, and with Asia viewed as the powerhouse for growth, SRI has forecast that in the next 10 years, China will account for 60 percent of all insurance premiums in Asia.

Expanding risk pools in emerging Asia will include non-motor personal, and medical and health covers, SRI said.

"The exponential growth of mid-market private medical in China, with premiums up 1500 percent over the last two years, offers an indication of the size of potential." Haegeli said. "Resilience levels in other emerging markets could be strengthened significantly by taking learnings from the China experience."

SRI said that it expects the strengthening of pricing in non-life insurance to continue, driven by rising loss costs in property catastrophe and US casualty.