Life insurance set to boom as interest rates surge, says Swiss Re Institute

Swiss Re Ltd / Key word(s): Research Update
Life insurance set to boom as interest rates surge, says Swiss Re Institute

27.05.2024 / 10:00 CET/CEST

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  * Higher interest rates will significantly boost profitability in the life
    insurance industry, Swiss Re Institute forecasts.

  * An additional USD 1.5 trillion of global life savings premiums will be
    generated over the next decade - more than double the amount of the
    previous decade.

  * Advanced markets will generate 61% of the additional savings premiums in
    the next decade, with 39% from emerging markets.

Zurich, 27 May 2024 - Higher interest rates around the world are
transforming the outlook for life insurance growth and profitability.
Savings products are attractive to consumers after a decade of weak demand
and low returns. Swiss Re Institute expects a new high for US fixed annuity
sales this year after record sales in both 2022 and 2023.

Jérôme Jean Haegeli, Swiss Re's Group Chief Economist, says: "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."

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 USD 1.5 trillion 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 USD 4 trillion by 2034. In contrast, global life
insurance premiums grew by only USD 300 billion in the entire low interest
rate decade of 2010 to 2019.

Paul Murray, Swiss Re's CEO Life & Health Reinsurance, says: "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. 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."

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%. The
growth in life insurance products is an important mechanism to close the
retirement savings gap, which Swiss Re Institute estimated at USD 106
trillion in 2022 for six advanced economies plus China and India.

Advanced markets to lead growth

Swiss Re Institute estimates that advanced markets will generate about 61%,
or USD 900 billion, of additional premiums in absolute terms in the next
decade, and emerging markets an additional 39% or USD 578 billion.

China alone will generate around 17% of the overall global additional
premiums, adding USD 256 billion between 2025 and 2034.

The life insurance landscape is changing

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. Insurers and asset managers turned to
alternative and illiquid investments to earn additional yield.

Today, insurers are expanding their asset management capabilities to grow
their savings business, and private equity investors bring extensive asset
management capabilities. Swiss Re Institute anticipates competition on asset
management in life insurance, with, for example, large insurers acquiring
private credit capabilities, and asset managers potentially acquiring
insurance companies. Consumers should benefit from this environment through
more attractive returns.

The report also explores the effects of rising yields on associated risks
for life insurance, such as the threat of surging lapse rates. Swiss Re
Institute analysis into lapse risk concludes that the peak is likely to have
passed. Rising rates have also increased credit risk, particularly in areas
such as commercial real estate, but the exposures of life insurers are
viewed as manageable, on average.

How to access this study

Swiss Re Institute's publication "Life insurance in the higher interest rate
era: asset-savvy is the new asset-light" is available here.

Disclaimer

Although all the information discussed herein was taken from reliable
sources, Swiss Re does not accept any responsibility for the accuracy or
comprehensiveness of the information given or forward-looking statements
made. The information provided and forward-looking statements made are for
informational purposes only and in no way constitute or should be taken to
reflect Swiss Res position, in particular in relation to any ongoing or
future dispute. In no event shall Swiss Re be liable for any financial or
consequential loss or damage arising in connection with the use of this
information and readers are cautioned not to place undue reliance on
forward-looking statements. Swiss Re undertakes no obligation to publicly
revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise.

For further information please contact Swiss Re Media Relations: + 41 (0)43
285 7171 or Media_Relations@Swissre.com.
Please use this link to access Swiss Re's press releases.

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These statements (including as to plans, objectives, targets, and trends)
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1911653 27.05.2024 CET/CEST