The global insurance industry will recover strongly from the COVID-19-induced global economic recession, with emerging economies led by China underpinning the insurance market comeback, according to the Swiss Re Institute’s July sigma report.
The reinsurer said that this year’s recession, the sharpest economic contraction since the Great Depression of the 1930s, will lead to a steep fall in demand for insurance in 2020, with global life premiums contracting by 6 percent and non-life by 0.1 percent—but the fall will be short-lived.
Swiss Re said that total global insurance premium volumes will return to pre-COVID-19 crisis levels in 2021, alongside more protracted recovery in the global economy.
Analysts expect to see sector divergence, with non-life premium volumes set to rise above pre-crisis levels, and life below pre-pandemic levels. Rate-hardening in commercial lines will support profitability in non-life, while increasing risk awareness as a result of COVID-19 is predicted to support premium growth across many lines of business in the longer term.
Premiums in trade and travel-related insurance business such as marine, aviation and credit will be hit the hardest, but property and medical business will be more stable, the report said.
Swiss Re highlighted that emerging markets led by China will underpin global market strength, with total premiums up 1 percent this year and 7 percent in 2021.
Swiss Re analysts added that the COVID-19 crisis will present challenges to industry profitability. In addition to pandemic-related losses, investment returns will remain subdued as interest rates stay low for longer, impacting life and long-tail lines in non-life.
A predicted rise in corporate defaults could lead to losses on invested assets. In life, claims payments as a result of COVID-19 are not expected to have a huge impact, but falling sales and fee income caused by lockdown restrictions are predicted to take a toll on profits this year.
Swiss Re, however, noted that the insurance industry is “very well capitalised” to absorb these losses. It said the COVID-19 shock would accelerate paradigm shifts such as a restructuring of global supply chains to reduce future business disruption. This, in turn, would support the increase of new premium pools in property, engineering and surety insurance.
“The insurance industry is showing resilience in face of the COVID-19-led economic downturn,” said Jerome Jean Haegeli, group chief economist at Swiss Re.
“The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008/09, even though this year’s economic contraction of around 4 percent will be much more severe.
“Unlike for the global economy, we expect a strong V-shaped recovery in insurance premiums, a remarkable showing considering that the world is currently in the throes of the deepest recession ever.”
Haegeli added: “The industry’s capital position means it should be able to handle the COVID-19 shock. The upper end of the range of total property and casualty claims estimates by most external insurance analysis is $100 billion, similar in scale to losses caused by hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed.
“The COVID-19 experience highlights the importance of insurance provision for pandemics. It is a lesson for insurers and policymakers alike who, in the interest of long-term societal and economic stability, should look to develop more public-private partnership solutions for pandemic risks.”
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