Non-life insurance pricing expected to continue rising: Swiss Re

Non-life insurance pricing is expected to continue to strengthen, as rising loss costs in both property catastrophe and U.S. casualty lines drive a need for increased profitability, according to Swiss Re.

The reinsurance giant said today that the non-life insurance and reinsurance environment is improving, with profitability on the rise.

But there is a recognition that there is more to do, as rising social inflation is a drain on profits, particularly in U.S. casualty lines of business.

The upshot is expected to be concerted and continued upwards pressure on rates, which should bode well for reinsurance and insurance-linked securities (ILS) players as well, as rising non-life insurance pricing will in time have a knock-on effect on the secondary and tertiary markets of reinsurance and retrocession.

The global insurance market continues to grow at the expected trend rate, Swiss Re’s Institute said today in its latest sigma report.

Global non-life and life insurance premiums are expected to rise by around 3% in both 2020 and 2021, with emerging Asia led by China expected to lead the way.

Profitability is seen as trending up in insurance, although partly due to investment portfolio gains. The risk side needs to catch-up and there is an increasing realisation that pricing may not have kept up with loss-cost trends, it seems.

As a result, sustained pricing increases are expected, particularly in non-life insurance lines, as underwriters seek to cover the loss-costs of recent years and persistent social inflation.

While there are expected to be benefits flowing through to insurance and reinsurance players from these higher rates, Swiss Re’s Chief Economist Jerome Jean Haegeli highlighted economic challenges ahead, “Our outlook on global growth has deteriorated from a year ago. The US/China trade conflict has been more far reaching than anticipated.

“In a broader sense, geopolitical developments have not improved. Rather, we have seen more polarisation across the world, all of which has added to the environment of uncertainty, including for business. Going forward, the US/China trade conflict poses the top risk to global growth.”

Swiss Re’s Institute also highlighted the important role of insurance and reinsurance in supporting global resilience today, saying that insurance is a key contributor to economic resilience, enhancing the underlying capacity of economies to weather financial shocks.

Closing protection gaps can help to enhance this resilience, but at the same time the industry needs to ensure it is being paid sufficiently to cover its loss costs.

It seems that the industry has not managed this particularly well in developed economies such as the U.S. in recent years, which has now led to the chance of more sustained price strengthening, Swiss Re believes.