What's Happening?
Swiss Re has released a report indicating that U.S. tariffs are contributing to a slowdown in global economic growth and insurance premium growth. The report forecasts a decrease in global GDP growth to 2.3% in 2025 and 2.4% in 2026, down from 2.8% in 2024. The insurance industry is expected to follow this trend, with total premiums slowing to 2% this year from 5.2% in 2024. The report highlights that U.S. tariffs are creating new risks for insurers, impacting inflation, trade, supply chains, and economic growth. The primary non-life insurance sector is experiencing decelerating premium growth due to softened insurance pricing and policy uncertainty. Swiss Re predicts that U.S. motor and construction claims will be most affected by these tariffs, although the effects are expected to be manageable.
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Why It's Important?
The implications of U.S. tariffs are significant for the insurance industry and the broader economy. The tariffs are expected to lead to a stagflationary shock for the U.S. economy, characterized by slow growth, high unemployment, and rising inflation. This could diminish the U.S.'s status as a 'safe haven' for global capital, affecting international confidence and investment. The insurance industry may face challenges in maintaining profitability due to increased claims costs and reduced demand. Additionally, the fragmentation of global markets and economies could lead to higher insurance prices and reduced insurability of peak risks, impacting global risk resilience.
What's Next?
Swiss Re suggests that while the tariff crisis may offer some underwriting growth opportunities, particularly in credit and surety insurance, the overall outlook remains challenging. Investment results will be crucial for driving profitability in the property/casualty sector over the next three years. The report warns that political fragmentation could reduce international cooperation on critical global risks, such as climate change and pandemics, increasing global exposures. Insurers may need to adapt to these changes by reassessing their strategies and pricing models to navigate the evolving economic landscape.
Beyond the Headlines
The report underscores the long-term risks associated with geopolitical and economic fragmentation. Trade barriers and supply chain disruptions may lead to prolonged inflation, increasing claims costs and potentially curtailing insurability of peak risks. The lack of international cooperation on global challenges could widen protection gaps, leaving firms and individuals with less insurance coverage. This scenario poses ethical and societal challenges, as the cost of fragmentation is ultimately borne by society.
