Cautious optimism The global economy is moving along nicely at present, but that doesn’t mean all our problems are over By John Deex
FIRST, THE GOOD NEWS: TEN YEARS after the Global Financial Crisis struck, the global economic outlook is “extremely positive”, according to Swiss Re’s new Chief Economist, Jerome Haegeli. Underlying economic growth improved strongly last year, and should continue to do so this year, putting upward pressure on inflation and interest rates. And the bad news? According to a recent Swiss Re Sigma study, higher inflation and interest rates won’t be enough to close the general insurance profitability gap. The report says underwriting margins need to improve by about 6-9 percentage points in major Western markets if current shortfalls are to be addressed. However, Australian insurers are better off
Trade giant: vast numbers of containers sit at Yangshan Port, Shanghai. Trade war between China and the US remains a major threat to the global economy
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October/November 2018
than their counterparts overseas, with only a one percentage point improvement required. Dr Haegeli says the current stronger economic conditions should see interest rates in mature markets continuing to rise moderately, “which should support insurers’ earnings through higher investment returns”. “[However], macroeconomic developments alone are unlikely to generate sustained improvement in non-life sector profitability. “The trend of declining investment yields has bottomed but at the same time, the increase in long-term interest rates that we foresee is not substantial.” At the start of the year Dr Haegeli took over as Chief Economist at Swiss Re from
