Core Matters “European insurance: 2024/26 outlook"

Highlights:

• We provide a description and 3-year outlook for the European insurance market by main Lines of Business (Lobs), including our proprietary forecasts of Gross Written Premiums (GWP).
• Our EU perimeter considers the following main EU countries: Germany, France, Italy, Spain, Austria, Switzerland, Czech Republic, and Poland (>70% of GWP in Europe ex-UK).  
• Global growth has become bumpier, but US recession risks are still low. In Europe (ex-UK), growth is expected to continue at a moderate pace, supported by resilient labour markets, large household savings accumulated over the past three years, and decent global growth. Euro area GDP is expected to grow by 0.6% in 2024, 0.9% in 2025, and 1.4% in 2026.  
• The ECB cut interest rates by 25 bps in June and September. Inflation will gradually fall towards 2% by 2026. The ECB is expected to go ahead with regular 25 bps rate cuts and conclude the easing cycle at 2.25% by YE25, with improving EU financial conditions. Risks are skewed towards a lower terminal rate.
• The EU life insurance sector grew by 1.8% in GWP in 2023, driven by high household savings and rising interest rates. However, results varied across countries: Spain + 36%; Austria, Italy, and Germany -5%. Factors explaining these differences include alternative investment options and policyholder incentives (including tax ones). The market is expected to grow at 4.3% 2024-26, supported by declining inflation and ECB interest rate cuts. Differences in local growth magnitude will persist.
• In 2023, non-life insurance GWP in the EU saw a significant increase across motor, property, and health segments. Inflation, driven by economic and geopolitical factors - COVID-19 pandemic, energy price hikes, and the war in Ukraine - have contributed to higher claims-related expenses, putting profitability under pressure. Insurers reacted by adjusting tariff upwards.
• The growth in non-life will continue consistently in the coming years (around 6%, 2024-26 CAGR), albeit at a more moderate pace as inflation cools off. Long-term growth prospects remain positive, supported by the ongoing demand and the sector's proactive response to market challenges. Climate change is among them: the rise frequency and severity of natural disasters is posing insurability issues to the industry. Public-private partnership will be key going forward to stem the surging protection gap and mitigate the increasing exposure to physical risk. 

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