Swiss Re forecasts strong rate hikes within 2019
Large natural catastrophe losses in 2017 and current low prices are expected to push up pricing in non-life insurance and reinsurance, according to Swiss Re Institute’s Global Insurance Review 2017, and Outlook 2018/19 report.
The string of natural catastrophes in the second half of 2017, including hurricanes Harvey, Irma, Maria, earthquakes in Mexico, and wildfires in California, could cost the industry an estimated $95 billion and lead to a combined ratio in the U.S. property and casualty insurance sector during 2017 of 109 percent, up from 101 percent in 2016.
These losses, alongside generally low prices and a global economy in a cyclical upswing, should support growth in the insurance markets with global non-life premiums forecast to rise by at least 3% and life premiums by about 4% in real terms annually in 2018 and 2019, according to Swiss Re.
Swiss Re expects the combined ratio in US P&C insurance for 2017 to rise to 109% from 101% in 2016, with the global reinsurance combined ratio expected to jump to 115% from 92%.
“Price rises in loss-affected segments are already happening and could be substantial,” says Kurt Karl, Swiss Re’s Group chief economist. “The ultimate volume of losses is not yet known, but appears to be large enough to cause price increases beyond the affected sectors. This is also happening because prices have fallen so low over the past few years.”
Swiss Re noted that the global economy is in a cyclical upswing, so the forecast is for moderate growth in 2018 and 2019. “This should further support growth in the insurance markets, with global non-life premiums forecast to rise by at least 3 percent and life premiums by about 4 percent in real terms annually in 2018 and 2019,” the report added.
“A number of risks could derail this relatively benign growth outlook. For example, protectionist trends pose an increasing threat to global economic growth,” Swiss Re said. “Also, there are worries that unwinding of quantitative easing programs by central banks could spark a negative financial market reaction. In addition, elevated corporate debt levels in China, despite measures taken, remain a concern.”
Global non-life insurance industry profitability has declined in 2017, with return on equity (ROE) down to 3% from 6% in 2016. Premiums are expected to rise by 6% to 7% in real terms annually over the next two years, with emerging markets like China continuing to be the main driver for growth.
The emerging markets, particularly in Asia, will continue to be the main driver of premium volume gains with premiums forecast to rise by 6 percent to 7 percent in real terms annually over the next two years, little changed from 2017.
Non-life business will continue to benefit from urbanization as well as rising home and car ownership, the report said. “Concerns about environmental protection, food safety and underinsurance in property are also expected to start to filter through to sturdier demand for associated liability and property covers,” it continued.