Canadian Underwriter

Where rising interest rates will lead insurers in 2022-23

July 15, 2022   by Alyssa DiSabatino

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Economic slowdown and high inflation will weigh down insurance market growth in 2022-23, primarily affecting property and auto insurers; still, rising interest rates may actually be a silver lining for insurers, Swiss Re Institute’s latest sigma report notes.   

Swiss Re predicts inflationary recessions in many major economies over the next 12-18 months, but central banks hiking interest rates is actually a “positive,” the report says.  

“It will help ward off 1970s-style stagflation. It also signals the end of the era of financial repression. For insurers, rising interest rates are a silver lining to the current inflation crisis, with investment returns set to improve. This will boost investment returns over the longer term as non-life insurers’ bond portfolios gradually roll over into higher yields.” 

However, slowing growth typically leads to lower demand for insurance, the report notes.  

“The main inflation impact will show in rising claims costs, more in non-life than life insurance in which policy benefits are defined at inception. We expect property and motor to be most impacted in the near term,” it reads.  

For construction, supply disruptions and labour shortages have also led to an increase in repair and rebuilding costs, resulting in higher claims costs. Auto claims costs have also risen as a result of parts shortages, leading to historically high prices for both new and used vehicles.  

“Accident, motor liability and general liability business will also be impacted, with high inflation feeding through into bodily injury claims,” the report notes. “However, insurers can counter the impact of rising claims costs by understanding the drivers of inflation, and action balance sheet and reserve management steps accordingly.” 

Swiss Re predicts global premium volumes in 2022 will surpass US$7 trillion for the first time, in part due to rate hardening. 

But as rates harden, premiums will grow in global commercial lines. “We estimate…premiums will rise by 0.8% this year,” the report reads. “For 2023, we forecast that global non-life premiums will grow by 2.2%, based mostly on ongoing rate hardening, notably in commercial lines of insurance business.

“Premium growth in emerging markets will likely outstrip that in advanced economies this year and next, with estimated real growth of 3% in 2022 and 4.2% in 2023.” 

High interest rates, stronger investment returns and improved underwriting results will show through improved profitability by next year, Swiss Re predicts.  

Non-life will also see a return on equity of around 5% to 6% in 2022, Swiss re projects. That’s down from 6% in the year previous, but it will rise to 6.6% in 2023 as underwriting results improve.  


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