Covid-19 recession highlights need for economic resilience: Swiss Re’s Haegeli

P&C (re)insurers’ premium growth will rebound at a quicker rate following the Covid-19-induced recession than after the global financial crisis, but economic reliance remains a key concern, according to Jérôme Haegeli, group chief economist, Swiss Re.

Speaking to The ReInsurer, Haegeli provided a bullish outlook for the (re)insurance sector and noted that while the pandemic economic shock is “huge”, it will not be a capital event for the industry. 

“The Covid-19 shock is huge, it’s the biggest recession of our lifetime, but it is an earnings event not a capital event,” he explained in a video interview. “While it may be one of the deepest recessions of our lifetime, it will also be one of the shortest.

“The recovery in insurance market premiums is going to be much quicker and stronger than what was seen before the global financial crisis. It’s certainly not a bad outlook for the insurance market given that recovery is kicking in strongly.”

Covid-19 will not be remembered as a so-called “black swan” event but rather a “white swan” event, Haegeli added, noting that pandemic risk should have been anticipated by the sector.

“It’s a systemic risk that we should have prepared for. It’s a wakeup call for more resilience and more risk awareness – that’s what our industry is all about,” he said.

The topic and theme of resilience is “super important”, Haegeli added. He warned that the global economy was less resilient to seismic shocks a year ago, than before the financial crisis, an issue that has been further exacerbated by Covid-19.  

Providing an outlook for the global economy, Haegeli said “the worst is very much behind us” on a cyclical macro outlook, but that “structural issues” will make any recovery “extremely protracted”.

“The road ahead definitely is going to be extremely bumpy and I do expect recovery to be extremely protracted,” he said. “Structural issues remain. These have existed before Covid-19. We are going to see much more debt and bankruptcies and if you look at the level of productivity growth, unfortunately it is likely that productivity growth is declining again.

“That’s all creating a difficult set of circumstances for the macroeconomic recovery to gain speed again given all the issues related to Covid-19.”

However, Haegeli urged the sector not to translate the macro environment one-to-one with the financial markets. “A bad macro doesn’t mean a bad market,” he said.

In particular, he pointed to the fiscal support measures launched by governments and Central Banks to prop-up the financial markets as essential buffers which have preserved benchmark prices.

“The Central Bank pot is definitely big; it’s alive and the pot is as strong as ever before,” he said. “Central banks are doing a lot for financial markets and benchmark prices have improved as a result. My outlook for financial markets is not a bad one; it’s rather constructive.”