Swiss Re – Global Economic & Insurance Market, 2024-25

Swiss Re predicts a slowdown in the global economy in 2024 due to cumulative monetary policy tightening and the fading growth impulses of 2023. The outbreak of war in the Middle East increases the risks to the outlook. Major economies are diverging, with the US continuing to grow, Europe stagnating or in recession in some countries, and China facing domestic growth challenges. Swiss Re forecasts global real GDP growth of 2.2% in 2024 and a rebound to 2.7% in 2025, supported by lower inflation and central bank interest rates. However, inflation and interest rates are expected to remain higher than previously anticipated in developed markets, and the risks are skewed to the upside. The company expects global CPI inflation to moderate to 5.1% in 2024 and 3.4% in 2025, but with volatile price pressures. The rise in long-term US sovereign bond yields signals a durable regime shift, and Swiss Re has raised its yield forecasts, which may expose fragilities in public and private debt balances. Geopolitics are expected to play a dominant role in driving the outlook, with the war in Israel adding new downside risks, particularly through potential energy price shocks. The insurance industry could benefit from major government initiatives in various sectors, leading to potential growth in commercial lines of business. However, the economic growth slowdown and geopolitical uncertainty dampen the outlook for the primary insurance industry, with total global real premium growth forecasted at only 2.2% annually on average for the next two years. Profitability is expected to recover, but the industry may not earn its cost of capital in 2024 or 2025 in major markets. Non-life insurance faces challenging claims dynamics, with rising claim frequency and severity, especially in the liability line of business. Natural catastrophe insured losses are estimated to reach USD 100 billion in 2023, and further hard market conditions are expected in 2024. In the life insurance sector, higher interest rates are expected to improve demand for savings-type products and boost profitability. The Middle East conflict adds stagflationary risk, and Swiss Re tracks two negative "tail risk" scenarios: "1970s style stagflation" and a "severe global recession". The probability of an upside scenario is considered to be lower than the two downside scenarios combined.