Higher interest rates around the world are transforming the outlook for life insurance growth and profitability, according to the Swiss Re Institute.
In its new sigma study, ‘Life insurance in the higher interest rate era: asset-savvy is the new asset-light’, Swiss Re Institute forecasts an additional $1.5trn in global insurance savings premiums over the next decade, as consumers are moving to buy life-savings products that secure higher retirement incomes.
As a result, total global premiums are forecast to grow to $4trn by 2034. In contrast, global life insurance premiums grew by only $300bn in the entire low interest rate decade of 2010 to 2019.
“Higher interest rates are a game changer, providing life insurance and pension products a tailwind to much better tackle the retirement savings challenges of ageing demographics. Savings products are attractive again as a direct consequence of normalising interest rates. Higher investment yields also benefit long-duration protection products,” said Jérôme Jean Haegeli, Chief Economist at Swiss Re Group.
“Higher interest rates give consumers more attractive options to secure their retirement income and we are seeing very positive market growth for life insurance to meet this need,” added Paul Murray, CEO, Life & Health Reinsurance at Swiss Re.
“Higher interest rates also allow insurers to meet their cost of capital. Reinsurers can furthermore support life insurers by freeing up capital, boosting underwriting capacity and focusing on product innovation for capital-light growth,” Murray added.
Significantly higher government bond yields are also now improving life insurers’ investment returns and margins for fixed annuities. Between 2022 and 2027, Swiss Re Institute forecasts the operating result for insurers in the largest eight life markets worldwide, which include the US, UK, Germany and Japan, to rise by more than 60% as investment income rises by 40%.
Swiss Re Institute’s report also outlines the structure of the life insurance industry. It analyses how listed (stock) insurers, mutual insurers and private equity-owned business have reacted to a decade of low interest rates, for example by exiting core lines of business or shifting towards capital-light, fee-based strategies. The report examines how new market entrants from private equity absorbed the divested traditional assets through reinsurance transactions.