Catastrophe exposure growth to keep outpacing insurance premiums: Swiss Re

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According to global reinsurance firm Swiss Re, inflation adjusted exposure to natural catastrophe losses is set to continue growing at a faster pace than insurance premiums around the world, which will drive the expanding protection gap even wider over the coming years.

In a new sigma report on global insurance and economic growth, Swiss Re notes that the US tariffs are set to slow both down.

The unstable policy environment and slowing economic growth means that both life and non-life insurers are expected to see slowing premium growth over the next few years, the reinsurance company reports.

Reduced trade and heightened uncertainty in the currently volatile political landscape will reduce spending and investment, with some of this not fully visible in the economic data yet, Swiss Re warns.

The Swiss Re Institute’s World Insurance sigma report states that global GDP growth (inflation adjusted) is expected to slow to 2.3% in 2025 and 2.4% in 2026, from 2.8% in 2024.

As a result and with ramifications for reinsurance capital providers, the global insurance industry is expected to follow this trend.

Swiss Re’s report forecasts that total insurance premium growth is expected to slow to 2% this year, from 5.2% in 2024, after which it may pick up slightly to 2.3% in 2026.

Jérôme Haegeli, Swiss Re’s Group Chief Economist, commented, “While insurers’ profitability outlook is still benefiting from rising investment income, we expect tariffs to slow global GDP growth, and consequently weigh on insurance demand. In the long term, US tariff policy is another move towards more market fragmentation, which would reduce the affordability and availability of insurance, and so diminish global risk resilience.”

While insurance premium growth will slow, the profitability outlook for the global insurance industry remains stable, Swiss Re believes.

Swiss Re Institute forecasts 2% year-on-year total insurance premium growth in 2025 and 2.3% in 2026, roughly half the growth seen in 2024.

The reinsurer explained, “In non-life insurance, intensifying competition in personal lines and softening market conditions across commercial lines, are driving significantly lower premium growth, down to 2.6% this year from 4.7% in 2024. After delivering 6.1% premium growth in 2024, life insurance will slow significantly to 1% as interest rates moderate, with growth to improve to 2.4% in 2026. At the same time, insurers’ profitability outlook remains positive due to continuing gains in investment income.”

Swiss Re’s new sigma report looks at the global insurance protection gap which it states has been widening in recent years.

Emerging markets suffer from the largest protection gaps, with the current geopolitical and economic fragmentation that is being seen potentially set to affect these regions further, Swiss Re said.

“We estimate that global protection gap across all perils reached USD 1.83 trillion (in premium equivalent terms) in 2023 as more than 40% of all crop, health, mortality and natural catastrophe exposures were unprotected or uninsured. The global total protection gap has grown by a cumulative 43% since 2013,” the reinsurance firm explained.

With insurance premium growth set to slow, it’s worth noting that Swiss Re reports that on the natural catastrophe front exposure will rise at an even faster rate than premiums going forwards.

Inflation-adjusted exposure growth is forecast to continue rising at a 5‒7% CAGR, Swiss Re says, far outpacing premiums.

This will drive a widening of the protection gap for natural catastrophe exposure, it seems.

But, alongside this exposure growth the insurance and reinsurance markets are resetting to a more volatile catastrophe loss environment, which Swiss Re believes will help to slow the current market softening that is being seen.

Swiss Re said, “We expect a soft market in personal and commercial lines over 2025 and 2026, underpinned by strong industry return on equity (ROE). Combined with an uncertain economic outlook, this may cause greater competition for insurance market share, putting further pressure on rates. Stronger investment income could further drive price competition. However, certain trends may put a floor under rate softening, for example tariff-driven claims uncertainty and above-trend natural catastrophe losses.”

Other highlights from the sigma report of relevance to our insurance-linked securities (ILS) market community are around property insurance, particularly in the United States.

Notably, Swiss Re says that, “Higher tariff-driven intermediate goods costs, machinery and commodities could cause higher claims severity in US commercial property, homeowner insurance and engineering lines.”

While also cautioning that, “The tariffs are likely to have their greatest inflationary impact around the third quarter of this year, the same time as the peak Atlantic hurricane season. This may amplify post-event cost increases and further boost claims severity.”

Something to watch out for through this wind season, as these possible inflationary effects from tariffs have likely not been priced into the reinsurance or ILS market at this stage.

On property insurance in general, Swiss Re’s report states, “Premium growth should moderate to 2.4% in 2025 (2024: 5.4%), largely due to the softening of commercial property rates. The homeowners’ segment is a prominent exception, due to persistent cost inflation and US natural disaster losses. Reforms in some European countries to make natural catastrophe covers mandatory, and changes in US infrastructure and industrial policy will likely add additional demand for commercial property in 2025 and 2026.”

Catastrophe exposure growth to keep outpacing insurance premiums: Swiss Re was published by: www.Artemis.bm
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