The global economy is poised for further solid expansion, according to a Swiss Re Institute report titled ‘sigma 5/2024: Global economic and insurance market outlook 2025-26’.
The report forecast global real GDP growth at 2.8% in 2025 and 2.7% in 2026, roughly in line with 2024. However, the distribution of risks is tilted to the downside, driven by geopolitical risk, the potential for disruptive policy changes and financial market vulnerabilities.
Swiss Re Institute group chief economist Jerome Jean Haegeli said, “A more fragile overall economic environment and volatile geopolitical backdrop raises risks of adverse macro scenarios. Early and proactive scenario monitoring will be critical for the insurance industry.”
The proposals from president-elect Trump’s campaign have mixed implications for the US economy that will ultimately depend on their extent and sequencing, however, the report anticipates slower disinflation and a shallower interest rate easing cycle. “We maintain our view that the US will continue its economic trend of outperformance, even if momentum will slow sequentially. This will contrast increasingly with the euro area and China, which face headwinds from trade tensions and structural challenges,” the report said.
Global CPI inflation is expected to decline slowly to an average 3.3% in 2025 and 3.0% in 2026, from 5.1% in 2024, according to the report. In response, a cautious US Federal Reserve will likely proceed with only three interest rate cuts in 2025, while central banks in the euro area and China ease policy faster as economic growth concerns dominate. However, fiscal risks may add upside pressure to long-dated bond yields in the West. Long term, the “five D” structural themes of deglobalisation, decarbonisation, demographics, digitalisation and debt will shape the outlook.
Sigma sees risks of an adverse alternative economic scenario emerging. “An event such as an escalation in geopolitical risk and tension, for example a disruptive trade war, or in financial market risks, such as a sudden and sharp rise in US Treasury risk premia, could bring us into one of two adverse scenarios we monitor, of renewed supply shocks or a global recession,” the report said.
According to the report, a “renewed supply shock” scenario envisages a stagflationary shock of inflation acceleration and weak economic growth. This would stress non-life underwriting performance via low real premium growth and high claims severity. Asset portfolios would face mark-to-market losses. A global recession would see a broad fall in insurance demand and weak profitability of exposed lines. Wider credit spreads, lower interest rates and falling asset prices would depress investment results. “We also monitor an upside “productivity revival” scenario, of tech-related investment benefits, but we view the likelihood as lower than the two downside scenarios together,” said the report.
It said that the global primary insurance market is to see above-trend growth in the next two years as the non-life hard market reaches an inflection point and life insurance sales ease from recent highs. The report forecast 2.6% total global real premium growth on average in 2025 and 2026, lower than 2024 (4.6%), but higher than the past five years (the 2019-2023 average: 1.6%). Steady global economic growth, resilient labour markets, rising real incomes as inflation moderates and still elevated long-term interest rates will support demand.
The primary non-life insurance industry is improving its profitability and economic sustainability. Underwriting results benefitted from easing inflation and higher premium rates this year and are expected to stay strong in 2025 and 2026. Coupled with improving investment results, this should support profitability.
The study expects a decade-high 4.3% global non-life premium growth this year following the repricing of risk in response to elevated claims. “Premium rates are now moderating and we forecast softer global premium growth of 2.3% annually in real terms over 2025-26, below the 3.1% average of the last five years. The active US hurricane season is likely to take global natural catastrophe insured losses to well over $100bn this year for a fifth consecutive year and may delay the onset of softer property insurance pricing,” the study said.
Of the global life insurance industry, the report said, “We project growth of more than twice the historical average, at 3% in real terms over 2025 and 2026, after a decade-high 5% growth in 2024. Total global life insurance premiums should reach $4.8tn by 2035, up from $3.1tn in 2024, driven by higher interest rates. US individual annuity sales should reach a new record of over $400bn this year,” the report said.
As monetary policy loosens, the report expects fixed rate annuity sales growth to slow and the focus to shift to indexed annuities. Pension de-risking offers another long-term tailwind for the life insurance industry, with potentially over $300bn of bulk annuity transfers in the UK and US in the next three years.
Demand for risk protection is less interest rate-driven and steady growth is expected. Primary life insurance has a positive profitability outlook in 2025 and 2026, due to still elevated fixed-income yields. Lapse risk is expected to be contained, with declining sensitivity to interest rates as central banks lower interest rates. M