Swiss Re: Industrial Policy, AI, and Aging Will Reshape Economy

The global economy is entering a period of long-term structural change, led by industrial policy, aging populations, and artificial intelligence (AI), according to the Swiss Re Institute's sigma report, Shifting Sands. While these forces are driving investment and transformation, they also bring new risks and long-term inflationary pressures.

Global gross domestic product (GDP) growth is projected to stabilize at 2.5 percent in 2026 and 2.6 percent in 2027, lower than the 3.1 percent average of the decade before the pandemic. Inflation is expected to stay above 2 percent in advanced economies, driven by high government spending and sustained industrial policy.

"Industrial policy is rewriting the economic playbook, AI is accelerating, growth looks strong, but the credit cycle will reveal how solid it really is," said Jérôme Jean Haegeli, group chief economist of Swiss Re and head of Swiss Re Institute.

Industrial policy has returned to the center of national strategies, with the number of government interventions in industrial sectors tripling since 2012. Investment is flowing into areas like semiconductors, AI, and defense. But while these policies aim to build resilience, they also raise risks from regional fragmentation, inefficiencies, and concentrated exposures. For insurers, this means more opportunities in property, liability, and engineering lines but also greater exposure when shocks occur.

Demographics are also reshaping economic and insurance trends. Aging populations are changing labor markets and shifting insurance demand toward health coverage and long-term care. This affects insurers' investment strategies and solvency planning as liabilities stretch over longer time horizons.

AI is gaining traction but remains in early stages. Swiss Re estimates that 3 to 8 percent of insurers' IT budgets in 2025 went to AI development. However, fewer than 5 percent of insurers have reported any financial impact. Most firms are using AI to augment human work rather than automate it completely. Key challenges include underwriting and pricing risks that lack historical data.

Despite these shifts, the insurance sector remains financially strong. Solvency ratios are above 200 percent, and liquidity levels are high. Global insurance premiums are forecast to grow by 2.3 percent in real terms in 2026 and 2027. In the nonlife sector, premium growth is projected to slow to 1.7 percent in 2026 before rising to 2.5 percent in 2027. Return on equity is expected to hold at around 10.5 percent, supported by investment yields of 4.3 percent and disciplined underwriting.

In the United States, GDP growth is expected to slow to 2 percent by 2026 and 1.9 percent by 2027. Inflation will remain above target, with rates at 2.8 percent in both 2025 and 2026. The euro area will benefit from fiscal stimulus, while China's growth will cool due to weak consumption and property sector challenges. Emerging Asia will remain resilient thanks to flexible monetary policy and shifts in global trade.