The outlook for life insurers has improved after central banks turned hawkish, raising interest rates after years of near-zero approaches, the Swiss Re Institute says in a new report.

Higher interest rates mean improved investment returns and margins on life insurance products.

“The surge in interest rates to 15-year highs dramatically improves the outlook for life and annuity insurance,” the report says. “Higher interest rates transform life insurers’ product offerings, as well as the sustainability of their traditional asset-intensive business.”

The report examines the eight largest life markets – Australia, Canada, France, Germany, Italy, Japan, Britain and the US – plus China and India.

Swiss Re expects operating result for insurers in the top eight markets to rise by more than 60% in the five years to 2027, with investment income up 40%. In contrast, the sector missed its cost of capital by nearly 5 percentage points a year on average in the post-global financial crisis decade.

“Life insurance stock market indices, a forward-looking proxy for profitability expectations, are now outperforming wider markets as investors recognise the benefit of higher rates,” the report says.

Real premium growth for savings business fell below global economic growth in the decade after the financial crisis, to just 1.1% annually on average.

With central banks now adopting hawkish monetary policies, the report says, “significantly” higher global life insurance premium growth of 2.3% on average is possible in the coming decade.

“Demographic shifts increase the need for life insurance savings products as well, with a historically large, and growing, share of the population in many countries above the age of 65.”

Global savings premium is expected to rise to $US4 trillion ($5.9 trillion) by 2034 from $US2.5 trillion ($3.74 trillion) this year. The gain far exceeds the $US300 billion ($449 billion) lift recorded in the post-financial crisis decade from 2010 to 2019.

Click here for the report.