Interest rate hardening in commercial lines is forecast to drive strong non-life insurance premium growth globally, but the effect of high inflation will weigh on total premium growth, according to a report from the Swiss Re Institute.
Swiss Re predicts higher inflation rates for the current decade than the previous one. This will increase the claims costs for non-life insurance, and in turn this will extend the interest rate.
Swiss Re predicts strong growth of 6.1% in total global insurance premiums this year in nominal terms, exceeding $ 7 trillion in total volume for the first time.
Non-life insurance premiums are forecast to rise by 7.1% in nominal terms and amount to USD 4.1trillion globally by the end of the year. Taking inflation into account, this will amount to 0.8% growth, according to Swiss Re. For 2023, premiums are expected to grow by 2.2% in real terms, mainly based on ongoing interest rate hardening, with strong growth expected in commercial lines.
The report said that the main inflationary effect will be reflected in rising claims costs, especially in the non-life insurance industry.
“We expect that properties and engines will be most affected in the short term. In construction, supply disruptions and labor shortages have led to increased repair and conversion costs and in turn higher claims,” the report states. on parts has kept the prices of new and used vehicles historically high. Accidents, car liability and general liability business will also be affected, with high inflation leading to personal injury claims. ”
However, inflation will lead to a “silver lining” for insurance companies, with rising interest rates over time that support the industry’s profitability by providing higher investment returns, Swiss Re said.
Inflation will drive further interest rate hardening, the report noted. “We expect claims inflation to have an impact on interest rate hardening in commercial and personal insurance companies this year and next.… Commercial lines (including work injury compensation) will continue to expand beyond private lines (including health). We estimate an increase of 1 , 1% of commercial premiums in 2022 and an increase of 3.1% in 2023, with the support of interest rate hardening, the report states.
It added: “Commercial line pricing will continue to improve in 2022, albeit at a more moderate pace than last year. In 2021, the strongest interest rate increases were in financial and professional responsibility (+ 34% on average) in the UK, US and Australia. Property prices rose in all regions (+ 11% on average), while accidents continued to lag behind (+ 6%).
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