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Triple-I Blog | Triple-I Global Outlook: Continued pressure on investments and premiums



The COVID-1

9 pandemic continues to slow economic growth around the world, with almost all countries experiencing a decline in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world's ten largest insurance markets is expected to decline by 6.99 percent by 2020, compared with Triple-I's previous estimate of a decline of 4.9 percent.

Forward-looking growth proxies, such as interest rates, government spending, stock markets and commodity prices, send mixed to negative messages of growth until 2021.

Against this background, Triple-I experts report, the global insurance industry has continued to issue new insurance policies. service existing and process and pay claims. While the final figures on the extent of the pandemic and the impact of the recession on the industry will not be clear until 2021-2022, early indicators point to a flat premium growth in 2020 globally and to significant differences in how the pandemic, monetary policy and recession affect insurers in the US versus abroad.

In its Global Macro and Insurance Outlook for the third quarter, published this week, Triple-I noted that global central banks maintained benchmark interest rates mostly upside down during the third quarter averaging 0.6 percent, which reflects the limits introduced by interest rate policy close to zero.

Concerns about lower long-term interest rates increase as global central banks have pushed interest rates even lower during the pandemic, the report says. In a recent survey, about 33 percent of U.S. insurance companies said they adopt fixed long-term benchmark interest rates, while 50 percent reported that they had changed or said they were changing their investment strategy. These changes are likely to be accelerated now that the US Federal Reserve has officially changed its focus on monetary policy and central banks around the world are following suit.

Interest rates are important because insurers derive most of their profits from investment income. In particular, US insurance companies are dependent on interest-bearing financial instruments such as corporate and government bonds. If lower interest rates put pressure on insurers' investment income, they must compensate by raising the premiums paid by policyholders or adjusting their risk profiles to reduce claims payments.

"COVID-19 and lower economic activity continue to hinder premium growth in real estate, employee benefits and auto," the report says, "while a recent survey shows that COVID-19 led to a reduction in the life premium."

The report states that it is too early to determine whether the growing demand for guarantees, damages and cyber coverage and an increased interest in captured insurance companies will compensate for a downward pressure on premium growth in the industry.


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