The insurance industry is likely to recover from the impact of COVID-19 as total premiums written return to pre-pandemic levels in 2021, according to a report from Swiss Re Ltd. on Thursday.
Despite short-term headwinds and blunted global economic activity, insurers will benefit from rising markets as economies recover.
“The insurance industry was well capitalized ahead of the pandemic and we believe it will absorb the COVID-19 earnings shock,” the reinsurer said in its Thursday report.
The midpoint of the range of estimates for claims associated with the pandemic is $55 billion, Swiss Re said, adding “The ultimate associated claims burden on the non-life side remains uncertain.”
That figure is still “well below recent peak-year natural catastrophe loss totals,” according to Swiss Re, citing the $90 billion hit from Hurricane Katrina in 2005.
The report acknowledges that the pandemic will blunt global economic growth. “The COVID-19 pandemic will spark the deepest recession since the 1930s, and we forecast that global gross domestic product (GDP) will contract by around 4% in 2020. This will lead to a slump in demand for insurance this year, more so for life than non-life (property/casualty).”
Recovery, however, should come reasonably soon, the report said. “Overall, however, we expect the industry to ride out what will likely be a short-lived recession, and for premium growth to bounce back as the economy enters more protracted recovery.”
As this happens, commercial insurers should be well positioned. “We see commercial Property & Casualty lines as the main driver of the comeback,” the report said, adding “Region-wise, it will be the emerging markets, notably China.”
Rising commercial insurance rates will then boost that recovery.
“COVID-19 has hit at a time of rate hardening in non-life, and we expect that trend to continue in commercial lines in particular, as capital becomes more scarce. This, and the expected bounce-back of insurance demand should support earnings over the longer term.”
Total premiums written will recover to pre-pandemic levels in 2021, Swiss Re said, after the pandemic slows insurance market growth by some 3% in 2020, similar to the decline seen in the Global Financial Crises.
“The insurance industry is showing resilience in face of the COVID-19-led economic downturn,” said Jerome Jean Haegeli, group chief economist at Swiss Re. “The magnitude of premium losses will be similar to that seen during the global financial crisis in 2008-09, even though this year’s economic contraction of around 4% will be much more severe. Unlike for the global economy, we expect a strong V-shaped recovery in insurance premiums.”
More insurance and risk management news on the coronavirus crisis here.
