Comeback on the Way
Swiss Re: Global insurance market should recover in 2021 from COVID-19 pandemic shock.
- David Pilla
- August 2020
Insurance demand will fall this year as the COVID-19 pandemic creates the deepest recession since the 1930s, but premium growth should recover in 2021, led by emerging markets and commercial property/casualty lines, according to Swiss Re.
Global gross domestic product will contract by about 4% in 2020, leading to a slump in demand for insurance this year, particularly for life insurance, said Swiss Re in a new sigma report. The reinsurer said life premium volumes will shrink by 6% in life and by 0.1% for nonlife insurance.
Citing ongoing uncertainty around the claims burden from COVID-19, the report said a range of current estimates “is very wide,” with a midpoint estimate of $55 billion for global COVID-19-related property/casualty losses “from a collection of sources.”
Before COVID-19, the insurance indcapital position ustry was well-capitalized “and we believe it will absorb the COVID-19 earnings shock,” the report said.
“The industry's means it should be able to handle the COVID-19 shock,” said Jerome Jean Haegeli, group chief economist, Swiss Re, in a statement.
“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.”
Swiss Re said the industry should “ride out what will likely be a short-lived recession, and for premium growth to bounce back as the economy enters more protracted recovery.”
“The insurance industry is showing resilience in face of the COVID-19-led economic downturn,” said Haegeli. “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% will be much more severe.”
The reinsurer sees commercial property/casualty lines “as the main driver of the comeback,” the report said.
By region, emerging markets will lead the comeback, particularly China, the report said.
“Against this background, and with Asian countries expected to recover more quickly, we believe the ongoing shift in global insurance market opportunity to emerging Asia and China in particular, will continue,” the report said.
“We forecast that China's share of global premiums will continue to rise rapidly to an estimated 18% (from 2019's 10%) in 2030, still only half the share of the U.S.”
Excluding medical insurance premiums, Swiss Re said China “remains on track to become the largest insurance market globally by the mid-2030s.
By then India, another emerging giant, will also be among the 10 largest insurance markets of the world.”
Swiss Re is estimating COVID-19 will hit global premium growth—both life and nonlife—by about three percentage points from its pre-recession growth.
“We forecast that combined life and nonlife direct premiums written will recover to above pre-pandemic levels over the course of 2021, a strong outcome given the severity of this year's recession,” the report said. “In relative terms, the declines in life and nonlife premium growth in 2020 will be of similar magnitude to that seen during the global financial crisis in 2008-09, even though this year's GDP contraction will be much more severe.”
Falling sales and fee income due to restricted in-person interactions will affect life segment profit this year.
“On the flipside, COVID-19 has hit at a time of rate hardening in nonlife, and we expect that trend to continue in commercial lines in particular, as capital becomes more scarce,” the report said. “This, and the expected bounce-back of insurance demand should support earnings over the longer term.”
Haegeli said COVID “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.”