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World Economy on Verge of Taking 1 of 4 Paths: Swiss Re

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Jérôme Jean Haegeli Jérôme Jean Haegeli (Credit: Swiss Re)

A team of insurance industry analysts says the world economy could follow one of four paths from now through 2022. One of the scenarios looks pretty good, one looks great, and two look awful.

Jérôme Jean Haegeli, the chief economist for the Swiss Re Group, and other forecasters put the four economic scenarios in a new report on the state of global insurance markets. The report was issued by Swiss Re Institute, a Swiss Re Group research arm.

In the baseline scenario, which may have a 65% to 70% chance of occurring, according to the forecasters, availability of a COVID-19 vaccine helps get economic activity back to normal, with a gradual recovery showing up in 2021 and 2022.

In the optimistic scenario, which might have a 15% chance of occurring, pent-up demand for goods and services, and successful government economic policies, could lead to even stronger, faster growth, with corporate demand for growth capital leading to steady increases in interest rates.

The forecasters’ two pessimistic scenarios are a “severe and protracted recession,” which might have a 5% chance of occurring, and a “stagflation” scenario, which might have a 10% chance of occurring.

Both the recession scenario and the stagflation scenario would start with countries’ lacking the ability to get the COVID-19 pandemic under control.

The severe recession would involve broad lockdowns, severe social unrest, a global credit crisis, regional wars, high unemployment and a housing price collapse.

The stagflation scenario would involve similar problems, along with loss of central bank independence, trade wars, and “social unrest leading to massive redistribution policies.” In that scenario, the forecasters say, in spite of the redistribution efforts, income and wealth inequality would increase, unemployment would rise, inflation would rise, interest rates would rise, and borrower defaults would rise.


  • A link to a copy of sigma 7/2020 is available here.
  • An article about a Swiss Re-backed team’s 2016 pandemic economic impact analysis is available here.

Even in the optimistic scenario, overall U.S. life and non-life insurance premiums might increase only about 3% in 2021 and about 1.5% in 2022, but life insurers might have an easier time holding on to customers than in the baseline scenario, the forecasters say.

In the severe recession scenario, the forecasters say, total U.S. insurance premiums could fall more than 4% in 2021 and come close to breaking even in 2022.

In the stagflation scenario, U.S. premiums could fall about 2% in 2021 and about 1% in 2022.

In the pessimistic scenarios, ups and downs in the stock market could hurt the performance of life insurance policies and annuities that provide investment guarantees, but, in the stagflation scenario, higher interest rates could increase the profitability of in-force life and annuity products that come with benefits guarantees, the forecasters say.

— Read Is the World Functional Enough to Support Life Insurance?on ThinkAdvisor.

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