Inflationary pressures will be felt through higher claims, particularly for property and casualty (P&C) insurers this year while slowing economies could lower demand for both life and non-life cover, Swiss Re Institute says.

The latest Sigma report describes the current period as a year of transition for the insurance industry as it seeks to manage the inflation surge and consequent rises in interest rates.

“We see headwinds to P&C profitability in 2022 and tailwinds from further rate hardening responses in 2023,” it says in a Sigma report.

“Rising interest rates are a positive prospect for the whole industry and will likely benefit investment results, although volatile financial markets and widening bond spreads are expected to create accounting losses in 2022.”

Swiss Re says its baseline outlook can be characterised as “stagflation-like” in reference to the term that gained prominence in the 1970s due to an unexpected combination of slow global growth and high inflation.

An inflation surge and slowing economic growth was already challenging major economies worldwide after an initial strong rebound from the covid crisis, the report says.

“We now expect the conflict in Ukraine to push global consumer price index (CPI) inflation even higher and put a further brake on growth momentum,” it says. “To exacerbate the challenge, high inflation is forcing central banks to tighten policy into a slowdown, although real interest rates will remain low by historical standards.”

Swiss Re has revised its forecast for inflation high and growth lower for all regions.

See ANALYSIS.