Why Swiss Re expects a bounceback of P&C premiums in 2021

Facing a global recession thought to be the deepest since the Great Depression of the 1930s, the global P&C insurance industry can expect premiums to contract by 0.1% in 2020, before rebounding alongside the economy in 2021, a new Swiss Re sigma report predicts.

Global P&C premium volume is forecast to be “broadly flat (-0.1%)” in 2020 before growth rebounds to 3.3% in 2021. Global P&C premiums grew by 3.5% in 2019, while Canadian P&C premium growth was in the range of between 5% to 10% in 2019, as sigma notes.

On average, Swiss Re projects a 1.6% growth in global P&C insurance premium over 2020-2021.

“In the here and now, we estimate that the COVID-19 crisis will put global premium (life and non-life) growth back by around three percentage points (ppt) from the pre-recession growth path,” says the 4/2020 sigma report, World insurance: riding out the 2020 pandemic storm. “We forecast that combined life and non-life direct premiums written will recover to above pre-pandemic levels over the course of 2021, a strong outcome given the severity of this yearʼs recession.

“In relative terms, the declines in life and non-life premium growth in 2020 will be of similar magnitude to that seen during of the global financial crisis (GFC) in 2008‒09, even though this yearʼs [global] GDP contraction [which Swiss Re predicts will be 4%] will be much more severe.”

Premiums in commercial lines tend to be more sensitive to economic downturn, as the sigma study notes. Commercial lines premiums are particularly expected to drop in lines connected to transportation, travel, trade and entertainment.

That said, as businesses start to re-open, premiums in the commercial lines are expected to lead the way to recovery.

“We expect commercial P&C business to lead the non-life market bounce back in 2021, supported by rate improvements and economic recovery,” the sigma study states. “Overall, we estimate a 1.1 ppt [percent point] pullback in premium growth due to [the] COVID-19 crisis, making for aggregate sector expansion of 1.6% over 2020-21.”

Swiss Re further estimates that in the global P&C insurance sector premium growth, and life insurance total premium volumes, in advanced markets will shrink by 4% in 2020 and return to positive growth of more than 2% in 2021.

On the claims side, while outcomes remain “exceptionally uncertain” because of how courts may interpret policy wordings related to business interruption claims, pandemic-related claims are expected to cost global P&C insurance industry around US$55 billion, the sigma study reports. This would put the pandemic losses between the 2017 payouts for Hurricane Maria (US$34 billion) and Hurricane Katrina (US$90 billion).

“The [global] industry’s capital position means it should be able to handle the COVID-19 shock,” Jerome Jean Haegeli, chief economist at Swiss Re, explained in a statement about the sigma findings. “The upper end of the range of total property and casualty claims estimates by most external insurance analysis is $US100 billion, similar in scale to losses by Hurricanes Harvey, Irma and Maria in 2017, which the industry also absorbed.”

Feature image by iStock.com/marrio31