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Swiss Re — Investor Presentation (November 2022)
26 slides from Swiss Re's investor presentation, Nov 17, 2022
Slide 1: sigma 6/2022: Global economic and insurance outlook
sigma 6/2022: Global economic and insurance outlook Dr. Jérôme Jean Haegeli, Group Chief Economist Media Roundtable, 17 November 2022 1
Slide 2: Key letter
Key letter Swiss Re Institute | November 2022 2
Slide 3: The key figures
The key figures 5 6 7 Swiss Re Institute | November 2022 3
Slide 4: Global macro outlook
Global macro outlook “The global economy will cool down noticeably under the weight of the inflation and interest rate shocks. The repricing of risk in the real economy and financial markets is actually a long-term positive. The insurance industry can show its value as it provides financial resilien
Slide 5: Economic outlook: The Great Moderation has ended with inflationary recessions
Economic outlook: The Great Moderation has ended with inflationary recessions exposing existing structural vulnerabilities Swiss Re Institute Consensus 2022 2023 2024 2022 2023 2024 Real GDP (% change) US 1.8 0.1 1.6 1.7 0.4 1.4 Eurozone 3.1 -0.2 1.3 3.0 -0.1 1.5 UK 4.3 -1.0 0.9 4.2 -0.4 1.2 Switzer
Slide 6: Cyclical and sentiment indicators in recessionary territory
Cyclical and sentiment indicators in recessionary territory with diverging future paths of major economies Cyclical growth perspective: Structural growth perspective: Composite Purchasing Managers’ Index US vs. Europe deviation from trend growth, indexed to 2019 levels 115 70 60 110 50 105 40 100 30
Slide 7: Inflation pressure has probably peaked, but will prove sticky
Inflation pressure has probably peaked, but will prove sticky even if headline CPI declines rapidly next year US Headline Personal Consumption Expenditures (PCE) Price Index US Headline Consumer Price Index (CPI) inflation contributions distribution of sub-component annual price growth (in percentag
Slide 8: Broadest tightening cycle for decades, yet financial conditions not tight enough
We have seen the broadest tightening cycle for decades, yet financial conditions are not tight enough to combat inflationary pressures % of world’s central banks hiking interest rates Bloomberg financial conditions index 3 Looser 2 1 0 -1 -2 Tighter -3 -4 -5 -6 -7 2017 2018 2019 2020 2021 2022 US Eu
Slide 9: The US economy is still overheating with a very strong job market
The US economy is (still) overheating with the job market very strong despite the recent Fed rate hikes, with excess savings providing buffers US job openings US excess savings: cumulative change versus pre-pandemic trend 2 USD tn USD tn 2.5 4 6.0 1.6 3.5 Job openings rate, % 2 3 1.2 Ratio 4.0 1.5 2
Slide 10: Global insurance outlook
Global insurance outlook “The global insurance industry faces a challenging macro environment and volatile financial market environment, but we expect rate hardening, scarce capital and higher interest rate to be very positive catalysts for the industry over 2023/24.” 10
Slide 11: Difficult environment creates headwinds and opportunities for insurance industry
The difficult environment creates economic headwinds and challenges for the insurance industry, but also opportunities Economic indicators Impact on industry Inflationary Shock on recession Macro-Dynamics balance sheet Rising Hit to stakeholder’s interest rates equity Financial Hardening stability r
Slide 12: Primary insurance premium outlook
Primary insurance premium outlook Slight contraction in total global premiums in 2022, recovering but still below-trend in 2023 and slightly above trend in 2024 • We forecast a 0.2% fall in total premiums in 2022 and below-trend growth of 2.1% on average over 2023/24 in real terms • For non-life, ad
Slide 13: Primary insurance profitability
Primary insurance profitability Rising yields will support profitability but this will take time • For non-life, return on equity (ROE) is expected to halve in 2022, but rebound to a 10-year high in 2024 as the interest rate tailwind takes effect • For life, profitability is improving due to rising
Slide 14: Scenarios and key takeaways
Scenarios and key takeaways “Alternative scenarios are key to monitor in today’s age of uncertainty. Risks are skewed to the downside, but a 1970s style structural stagflation scenario is still remote.” 14
Slide 15: Alternative scenarios: risks remain to the downside
Alternative scenarios: risks remain to the downside with uncertainty elevated Golden 20s 1970s-style stagflation Severe global recession Prob: 10% Prob: 30% Further digitalisation Wage-price spirals developing Lasting commodity price shock Narrative Accelerated infrastructure Persistent supply disru
Slide 16: Key takeaways
Key takeaways The near-term outlook remains highly uncertain and fluid with inflationary recessions approaching. Inflation and interest rates will be structurally higher even as they are peaking The great moderation period has ended, and the next crisis cannot be managed again with past stimulus mea
Slide 17: Get your publication today and subscribe to our research
Get your publication today and subscribe to our research Sigma Expertise Publications Economic Insights Economic Outlook • Market information for • Expert analysis of specific • Key findings on macro • Monthly newsletters on global managers and specialist in risk topics in regional developments and
Slide 18: Q&A
Q&A Swiss Re Institute | November 2022 18
Slide 19: Thank you!
Thank you! Contact us Follow us Dr. Jérôme Haegeli Group Chief Economist jerome_haegeli@swissre.com @JeromeHaegeli 19
Slide 20: Appendix
Appendix Swiss Re Institute | November 2022 20
Slide 21: Call for action: Alleviating tension between inflation and fiscal sustainability
Call for action: Alleviating the tension between addressing inflation and supporting fiscal sustainability will require long run investment in productive supply capacity Evolution of productivity growth Contributions to closing the USD 271 trillion “net Output per worker, % zero” climate investment
Slide 22: Interest rate shocks expose accumulation of risk
Interest rate shocks expose the accumulation of risk through both the macro and financial channels as the great moderation period has ended Debt as a % of GDP is reaching all-time highs and Financial stability risks are increasing in the US but creating a large “debt overhang” not in systemic risk z
Slide 23: US recession likelihood indicators
US recession likelihood indicators 10-year – 3-month yield curve inversion 10y – 3m inversion has historically led to vs. prior recessions recession by 12 months 5 1 Date of Unemployment CPI YoY Date of No. months 4 0.9 inversion recession inversion to 0.8 start recession 3 0.7 Oct-22 3.5 8.2 ? ? 2
Slide 24: Impact of inflationary shock on insurance claims
Impact of inflationary shock Key drivers of insurance claims cost on insurance claims, major lines of business different sub-economic inflation, key markets 20% Line of business 2022 2023 Reason 16% Property High Above Price of materials peaked in average '22, but higher wages in '23 12% Motor, phys
Slide 25: Swiss Re Institute | November 2022
Swiss Re Institute | November 2022 25
Slide 26: Legal notice
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