• Total premium growth is forecast at 2.2% annually on average for the next two years, higher than the average of the past five years (2018–2022: 1.6%)
• With investment returns increasing and hard market conditions continuing, the insurance industry further improves profitability
• Geopolitics take dominant role in driving economic environment with global real GDP growth at 2.2% for 2024, down from a 2.6% estimate for 2023, before a revival to 2.7% in 2025
• Inflation and interest rates in developed markets expected to stay higher in the next decade with global inflation forecast to moderate to 5.1% in 2024 and 3.4% in 2025

Zurich/London, 21 November 2023 – After a resilient 2023 powered by strong US economic growth, the world economy is expected to slow by 0.4 ppts. to 2.2% real GDP growth in 2024. Major economies are diverging with the US continuing to grow, Europe stagnating and China grappling with structural domestic growth challenges. The conflict in the Middle East is heightening risks to the macroeconomic outlook. According to the sigma "Risk on the rise as headwinds blow stronger" the global insurance industry's strengthening financial position offers welcome reinforcement against elevated macroeconomic and geopolitical risks.

Jérôme Jean Haegeli, Swiss Re's Group Chief Economist, says: "Fading economic tailwinds and geopolitical uncertainties reinforce the primary insurance industry's essential role in risk transfer. While the sector will continue to strengthen its profitability, mainly driven by improved risk-adjusted pricing as well as higher investment returns, it is not yet expected to earn its cost of capital in 2024 or 2025 in most markets as economic inflation will continue to have a negative impact on claims costs."

According to the Swiss Re Institute, labour market strength has been the main driver of resilience this year, with unemployment rates historically low in the US (3.9% as of October) and euro area (6.5% as of September) despite an increasing labour force. This has strongly supported consumer demand, especially in the US where consumer spending is expected to grow by 2.4% in real terms in 2023. However, according to the sigma report, labour market resilience is not a sign of re-acceleration, but a reminder of the uneven lags of monetary policy, which often takes longer to impact on labour markets than other parts of the economy.

Higher risk of recession in Europe than in the US

The outbreak of war between Israel and Hamas in October 2023 has added risks to the global economy. The combination of above-target inflation and near-term economic resilience in some advanced economies implies that central bank policy interest rates will stay restrictive for at least the next two years.

Charlotte Mueller, Swiss Re's Chief Economist Europe, says: "The full impact of higher interest rates on the real economy is still to filter through. For corporates, a higher cost of capital and labour input costs will increasingly erode profit margins and could induce layoffs. Europe's economy will be the key underperformer over the next two years, with some large economies like Germany already in contraction."

Investment results more important component of industry returns

In the Property & Casualty insurance sector, a significant repricing of insurance risk in 2023 will result in an estimated 3.4% global premium growth this year and is forecast to soften to 2.6% growth in 2024 and 2025. The impact of economic inflation on claims is forecast to ease further over the course of 2024 and 2025. Non-life insurance profitability will improve to around 10% return on equity (ROE) in both 2024 and 2025, well above the 10-year average of 6.8%, according to sigma findings.

The improvements in profitability are driven by higher investment returns given the higher interest rate environment, as well as better underwriting results due to more commensurate premium rates in both commercial and personal lines. Current investment returns in the non-life segment have surpassed 3.3% in 2023 and will further rise to around 3.7% in 2024 and 3.9% in 2025. Underwriting is also being supported by disinflation and improved terms and conditions, which are expected to increasingly mitigate the effects of inflation on claims costs.

High rates, higher demand: USD 4 trillion savings premiums in 2033

The adjustment to the new normal of higher interest rates is supportive for the global life insurance industry. Swiss Re Institute anticipates strong growth in savings products in the next two years, driven by a growing global middle class with individuals increasingly looking to insurers for their retirement planning. According to the sigma report, premium growth is on a robust recovery path with 1.5% total real-term global growth in premiums in 2023, after a 0.7% contraction in 2022, and still higher premium growth forecast in the medium term (2024–2025: 2.3%). This is driven largely by emerging markets (+5.1%), but also supported by advanced markets (+1.3%).

About USD 2.3 trillion of savings premiums were written globally in 2022. Swiss Re Institute forecasts this will grow to USD 4.0 trillion in 2033, a 2.7% average annual growth rate in real terms. This would translate into USD 1.7 trillion of additional savings premiums over the next 10 years, a 65% increase in new business premiums compared to the past two decades. Swiss Re Institute growth forecast for the next decade has increased significantly largely because the past 20 years were negatively impacted by the global financial crisis, the low interest rate era and the pandemic.

Table 1: Real GDP growth and CPI inflation forecasts, 2022 to 2025F

E = estimates. F = forecasts. Data as of 6 November 2023
Source: Swiss Re Institute, Bloomberg

Table 2: Insurance premium growth forecast in real terms

E = estimates, F = forecasts. Data as of 6 November 2023.
Source: Bloomberg, Swiss Re Institute

How to order this sigma study:

Sigma 6/2023, "Risk on the rise as headwinds blow stronger – economic and insurance market outlook 2024/25" is available in electronic format. You can download it here.