The world economy is making a strong cyclical recovery from the COVID-19 pandemic, but it is not a smooth one.
The key takeaways of this sigma are
- The cyclical recovery in global economic growth will slow as supply-side shocks persist, and monetary policy becomes less accommodative. Our GDP growth forecasts are below-consensus.
- We forecast above-consensus average annual inflation globally in 2022, including 5.0% in the US, 2.6% in the euro area and 3.8% in the UK, above central banks’ targets of 2%. Cost pressures are starting to feed into harder to reverse prices such as rent and wages.
- We estimate global real insurance premiums to grow by 3.4% in 2021, taking total global direct premiums written to 8% above the 2019 level.
- Insurance profitability should improve in 2022 after a challenging 2021 as the industry absorbs COVID-19-related claims, above-average catastrophe losses and high inflation.
- Non-life underwriting profitability should recover from 2022 as insurers internalise expectations of higher inflation, and rates in commercial lines rise again.
- For life insurers, advances in COVID-19 vaccinations should also strengthen profitability from 2022, after a year of high mortality in 2021. In Brazil for instance, the life insurance benefit ratio in April 2021 was more than double that of April 2020.
- Investment returns will likely be challenged by ongoing low interest rates that do not fully compensate for inflation, making underwriting discipline crucial.
Link to full report https://www.swissre.com/institute/research/sigma-research/sigma-2021-05.html