Insurance premium growth will slow this year after the rises and profitability peaks of 2024-25, a global report by the Swiss Re Institute says.

The reinsurer points to competitive pricing conditions and moderating economic momentum, particularly driven by the Middle East conflict, which is “slowing economic activity, raising inflation and reinforcing a broader shift towards a more fragmented world economy”.

It says these factors will reduce non-life premium growth to 0.6% this year – a significant drop from the 3.6% compound annual growth rate of 2015 to 2024. 

A $US750 billion ($1.08 trillion) boom in AI investment, geopolitical fragmentation and recurring supply shocks will reshape the global economy and change the nature of risks insurers face, according to the paper, called World Insurance in 2026: Shock Absorbers in a Fragmenting World.

“The latest Middle East conflict is not a one-off shock but another sign that geopolitical risk has become a structural feature of the global economy, with four supply shocks in six years,” said Swiss Re group chief economist Jerome Haegeli, pointing to the covid pandemic, the global energy crisis, trade disruptions and the US war on Iran.

“As economies invest in AI infrastructure, energy systems and more resilient supply chains, entirely new pools of risk are emerging. Insurance has a vital role to play – not only in derisking these investments, but in enabling the real economic transformation and giving the risk a price.”

The report identifies a structural shift in the global economy as governments prioritise national security, strategic autonomy and supply chain resilience over economic efficiency. The era of “just in time” supply chains is giving way to an era of “just in case" resilience as companies reassess supplier dependencies, logistics routes and geopolitical exposures.

This downward pressure on world economic growth is counterbalanced by the huge boom in AI investment, including a major capital expenditure cycle across data centres, energy infrastructure and advanced manufacturing, Swiss Re says.

It estimates capital expenditure on AI by “hyperscalers” – tech companies building internet infrastructure – will add about 0.2 to 0.3 percentage points to US growth.

“These assets are increasing demand for protection across property, engineering, cyber, liability and business interruption insurance, therefore reinforcing the importance of global (re)insurance capacity,” Swiss Re says.

AI investment creates construction, operational and accumulation risks. These “interconnected exposures call for solutions that go beyond traditional insurance, combining risk engineering, alternative risk transfer and financing to help businesses invest with greater resilience.”

The report also argues that the same forces fragmenting the global economy are expanding demand for insurance while undermining the means to provide it.

“Companies may increasingly have to shift their focus from pure efficiency to resilience, adapting their business models to survive an era of shifting policy-driven risks and threats to supply chains. For insurers, this cuts both ways. It creates new demand for risk transfer solutions, opening new opportunities for insurance.

“At the same time, the sector must adjust to the regime shift through more sophisticated risk modelling and monitoring, and revised asset-risk management.”

The report warns: “Fragmentation may weaken the mechanisms that make insurance efficient and affordable. Cross-border diversification is central to (re)insurance markets, but capital controls, regulatory divergence, sanctions and financial system segmentation could encourage local retention of risk and capital.

“Measures such as limits on intragroup reinsurance and local collateral requirements would erode the diversification benefits on which reinsurance, retrocession and alternative capital markets depend.”

Inflation will be a key factor easing the softening of premium growth, meaning the current cycle will not last as long as previous ones.

“The longer the inflationary pressures from the Middle East conflict persist, the greater the risk that its effects feed through to repair, replacement and liability costs, thereby partially offsetting downward pressure on pricing. Insurers are likely to reprice more sharply if large losses, inflation and capital signals deteriorate beyond expectations.”

Despite softer pricing conditions and rising claims inflation, profitability for non-life insurers is still robust, if down from its peak. Swiss Re forecasts a return on equity of 11.4% this year, down from 14% in 2025. It expects this will drop further to 7.7% in 2028. Still-elevated investment returns provide the main cushion against the underwriting cycle downturn, it says.

As for the life sector, it continues to benefit from a higher interest rate environment.

Swiss Re says global life premium will grow by 2.3% in real terms this year – higher than non-life growth and the long-term trend.

Higher yields continue to support savings and annuity business, while emerging markets benefit from favourable demographics, regulatory reforms and rising insurance penetration. The profitability outlook for life insurers also remains positive, as higher reinvestment yields continue to support investment income, the report says.

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