Property and casualty (P&C) insurance premium growth is expected to soften in 2024 and 2025, but the sector’s profitability is projected to improve due to stronger investment returns and better underwriting performance, according to Swiss Re’s latest sigma report.
Global Premium Growth Outlook
Total insurance premium growth is forecast at 2.2% annually on average over the next two years, which is above the 1.6% average seen over the past five years.
For P&C specifically, global premium growth is expected to be
- 3.4% in 2023, driven by significant risk repricing
- 2.6% in 2024
- 2.6% in 2025
This reflects a moderation as earlier rate increases work through the system.
Profitability on the Rise
Swiss Re projects non-life insurance profitability to reach around 10% return on equity (ROE) in both 2024 and 2025, up from a 10-year average of 6.8%. This improvement comes despite economic inflation still affecting claims costs.
The key drivers are
- Higher investment returns from elevated interest rates
- Better underwriting results due to more adequate pricing in commercial and personal lines
Investment Returns Strengthen
Non-life investment returns have already risen to over 3.3% in 2023, and are expected to increase further to
- 3.7% in 2024
- 3.9% in 2025
Underwriting performance is also improving, supported by disinflation and tighter policy terms, which are helping offset lingering inflationary pressures on claims.
Life Insurance Shows Recovery
The life insurance sector is on a recovery path, with 1.5% real-term global premium growth in 2023. Growth is led by emerging markets at 5.1%, supported by advanced markets at 1.3%.
Savings premiums are projected to reach $4 trillion in 2023, growing at an average of 2.7% per year in real terms.
Macroeconomic Challenges Ahead
Despite positive trends in profitability, Swiss Re expects global economic growth to slow to 2.2% real GDP growth in 2025. Key risks include
- A strong US economy
- Stagnation in Europe
- Growth challenges in China
- Geopolitical tensions in the Middle East
Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist, noted
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.
Charlotte Mueller, Swiss Re’s Chief Economist in Europe, added
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.
Related topics:
