C _ Group Management Report BUSINESS ENVIRONMENT 1 Economic environment 2021 Business environment 2021 for the The second year of the COVID-19 pandemic differed from the previous insurance industry year in one key aspect: Effective vaccines against the virus became For insurance companies, 2021 was a mixed year. On the one hand, available, marking the start of an unprecedented global vaccination the strong economic upswing, increased risk awareness of both campaign. By year-end 2021, a total of over 9 billion vaccine doses had households and companies, and rising prices (especially in commercial been administered. While this did not end the pandemic – viral mutations lines) all created a tailwind for premium income. On the other hand, and rising case rates continued to keep the world on tenterhooks – it several factors weighed on profitability. First and foremost, the insured helped mitigate its economic impact: Containment measures became less losses of natural catastrophes: Globally, 2021 was one of the most stringent; both people and companies increasingly learned to live with the expensive years ever; for German insurers, it was the most costly due virus. to the flood disaster in the summer. At the same time, the COVID-19 This was reflected in global growth figures: After the sharp slump pandemic caused further losses – in particular, excess mortality in in 2020 (-3.4 %), the world’s GDP increased by 5.3 % in 2021, the many countries – as well as burdens from rising inflation. In some strongest growth in almost 50 years. All regions benefited from this sectors, prices for commodities, materials and parts increased strong recovery; however, while growth rates in North America, Europe, significantly, making claims settlement more expensive, for example in and Asia averaged more than 5 %, GDP growth in Africa was only 3 % – motor and property. Last but not least, virtually unchanged low interest not least due to the sluggish progress of vaccination. rates continued to be a very challenging environment for investments. The downside of the recovery was a rise in prices. Fueled by generous Sustainability finally became the guiding business maxim in 2021. fiscal packages and record-high savings, a boom in consumer durables This no longer relates solely to environmental issues, although these set in – a consequence of ongoing restrictions for contact-intensive continue to dominate. But at the same time, customers, employees services. In many cases, the surging demand overstretched the supply and the general public, for example, expect companies to be side, leading to bottlenecks and parts shortages, which – together with committed to diversity and to combating inequality as well. rising energy prices – caused a sharp increase in inflation. Towards the Looking at the premiums development in 2021, in the property- end of 2021, this forced many central banks to start withdrawing their casualty sector we observed increased premium growth, reflecting the extremely expansive monetary policy or at least to announce normalization of business in the wake of the economic upturn. corresponding steps. The U.S. Federal Reserve Bank reduced its bond Commercial lines in particular continued to benefit from rising prices. purchases; the European Central Bank held out the prospect of doing so That said, profitability remained under pressure: In addition to the in 2022. factors reported for previous years – on the one hand, declining The markets remained largely unimpressed by the emerging turn investment income due to persistently low yields; on the other hand, in interest rates. Supported by strong corporate earnings and capital rising claims due to the climate-induced increase in natural inflows, the stock markets rushed from record to record. The U.S. market, catastrophes – 2021 brought on another negative factor: The rapid rise as measured by the market-wide S&P 500 index, set the pace with a in inflation significantly increased costs in some lines of business, 27 % gain; European stocks (Euro STOXX 50) were close behind at 21 %. especially property and motor. This strong performance was also due to the subdued reaction of rates In the life sector, premium income recovered strongly in 2021, due to the strong pick-up in growth and inflation. Yields on 10-year to the growing demand for risk products: Many households were keen benchmark bonds remained at a very low level by historical standards, to close their insurance gap with regard to mortality risks; at the same rising just slightly to 1.5 % in the United States and -0.2 % in Europe by time, savings products benefited from both the favorable year-end 2021. As a result, financing conditions for governments and development of the markets and the high level of household savings. companies remained extremely favorable. In terms of profitability, the interest rate environment remained the biggest challenge in 2021, further compounded by significantly increased mortality in some markets. 1_At the date of the publication of this report, not all general market data for the year 2021 used in the chapter Business Environment was final. Also, please note that the information provided in this chapter is based on our estimates. Annual Report 2021 − Allianz Group 75