Global economic growth has remained resilient over the last year, and interest rates higher in the face of inflation persistence. In this environment, it estimated that global GDP will increase by 2.7% in real terms in 2024, said Swiss Re’s sigma in its latest report titled ‘World insurance: Strengthening global resilience with a new lease of life”’.
There is regional divergence with the US growing above trend and the euro area below, which the report expects will narrow come 2025 as cyclical factors redirect growth rates back to trend. On the inflation front, while the worst of the post-pandemic global inflation crisis is over, upside risks remain, which could continue to put upward pressure on insurance claims. Central banks, meanwhile, may continue to prioritise inflation containment over growth. Another uncertainty the report points to is that when accounting for population changes due to immigration, real GDP per capita figures point to deeper underlying weaknesses in some advanced markets. This could accentuate social polarisation/tensions and widen protection gaps.
New boost for life business
For life insurance business, the prevailing economic backdrop is good news for insurers, said the report. The high interest rates have given life business a new lease of life, boosting demand for savings products in particular. Sigma forecasts that global life premiums will grow above-trend by 2.9% in real terms in 2024, up from 1.3% growth in 2023. It also projects a strong 15% gain in life sector profitability this year, driven by a 14% increase in investment income, given the shift to a high-growth and high-returns environment, from low growth/returns.
Increasing take up of savings products will help narrow retirement protection gaps. Further, high interest rates will attract new capital investment. This, in turn, will increase industry capacity to provide risk transfer solutions and strengthen societal resilience.
One development on account of the higher interest rates will be a marked turnaround in life premium growth in advanced markets. The report estimated that the advanced markets will contribute about half of all additional life premiums over the next 10 years, a significant improvement from the 9% in the low interest rate decade before the pandemic. The contribution of incremental life premiums (in absolute terms) from advanced Asia Pacific and western Europe to global premium volumes will turn strongly positive, having been negative. The contribution from fast-expanding economies in emerging Asia will also grow. M