Swiss Re Institute warns of mixed impact from economic slowdown and high inflation

Research organisation the Swiss Re Institute has predicted that global total insurance premium volumes will exceed $7tr (£5.73tr) for the first time ever this year.

In its latest Sigma world insurance: Inflation risks front and centre report, published at the end of June 2022, the Swiss Re Institute estimated that global growth in total premiums for both life and general insurance would reach 6.1% in 2022.

This was based on expectations of more rate hardening in general insurance (GI), to counter high levels of inflation and strong premium growth in emerging markets.

The institute also predicted that inflation of exposure values and rate hardening would boost premium growth in GI globally, particularly in North America and Europe.

It added that rising interest rates would boost insurers’ investment returns over the longer term.

However, it also predicted that economic slowdown and the high inflation environment would ”weigh on insurance markets”, with slowing growth typically leading to lower demands for insurance.

The major impact of inflation would be seen in rising claims costs, said the report – particularly in property and motor lines in the near term, although it warned that accident, motor liability and general liability lines would also be impacted.

The Swiss Re Institute warned that insurers needed to “understand the drivers of inflation and action balance sheets and reserve management steps accordingly” to counter the negative impact of rising claims costs on earnings.

UK priorities

Steven Board, senior client manager and divisional broker representative at Swiss Re, said that weather events earlier in the year had particularly impacted on the UK’s losses.

He explained: “Our estimates suggest that the flurry of winter storms that hit Europe in February triggered between $650m and $700m (£532m and £573m) of insured losses for the UK.

“The chaos caused by storms Dudley, Eunice and Franklin served as a real wake-up call on the need to extend the reach of risk transfer solutions and increase the financial resilience of businesses and communities across the region.

“For the UK insurance industry, the key priority should be embracing the full breadth of available data and new innovations to better understand the different factors that shape present and future risk scenarios.

“Outside of this, as investors, the industry can finance sustainable projects, helping to reduce costs and create incentives to build for resilience.

”By acting as a ‘de-risker’, insurers can also help establish a longer-term framework and facilitate new types of protection and make cash flows more predictable.“

• Insurance Times has converted dollar amounts into pounds using an exchange rate of £1 = $1.22, which was correct as of 1 August 2022.