Swiss Re looks inside the sails of life insurers

What do you want to know

  • Rising costs could stifle products such as dental insurance.
  • Higher interest rates would favor in-force products with guarantees.
  • Rate increases can result in losses as well as gains.

Economists from a research arm of Swiss Re have tried to think about the winds that could blow through the world’s life insurers over the next two years.

Economists have issued a cautious prediction that life insurers could do very well, in a new report on the possible effects of “stagflation”, or a combination of rising prices and slowing economic growth.

What this means

A reinsurer such as Swiss Re sells arrangements that act as insurance for insurance companies.

If reinsurers are still happy with their customers’ finances, it could be a sign that global capital will continue to flow into life insurance, annuities, health insurance and related products at about the same pace, and that your customers will continue to be able to choose from future menus of life insurance and annuity products that look at least as appealing as the old menus.

It could also mean that, as far as experts can tell, the odds of life insurers meeting product obligations continue to be good.

The winds

When economists considered the “headwinds, or negative forces, facing issuers of life, health, and annuity insurance, they came up with the following list of profitability headwinds:

  • Ukraine-Russia could harm the entire global economy.
  • Interest rates could stay low.
  • High inflation could hurt customer demand for life insurance, annuities and health insurance.

But economists have also created a list of possible “tailwinds” or helpful forces:

  • The mitigation of the COVID-19 pandemic could result in lower claims costs.
  • Interest rate hikes could start to improve investment income.
  • Memories of the pandemic could increase demand for protective products.

Inflation

Inflation itself could increase the claims costs associated with certain types of indemnity-based health insurance products, such as dental coverage. But in most cases, life insurers can manage this kind of risk by updating product benefits and prices, economists say.

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