The virtuous cycle of insurance and sustainability; Trumponomics, Central Banks’ latest, and China’s trade surplus
The insurance sector is only mentioned in a single place in the UN's Sustainability Development Goals (SDGs): I In our view, this does not reflect the actual importance of insurance in this context. We therefore took a closer look this week at how the insurance sector can support the SDGs. In our What to Watch section, we analyzed the playbook of Trumponomics; looked at the upcoming central banks decisions and examined China’s slippery trade surplus in the year of the snake. Plus fresh digital content for you: On January 29th, 2pm CET a LinkedIn live event “Live with Allianz Research: The global economic outlook for 2025-2026” will take place with @BOATA, Ana (Euler Hermes Services) and @Griesbach, Bjoern (Allianz SE). You can find the event details here.
Insuring the future: The virtuous cycle of insurance and sustainability
The comprehensive report for you here.
The world is still far from achieving the full set of Sustainable Development Goals (SDGs) by the 2030 deadline. The UN’s midpoint analysis marked a significant portion of goals in red – denoting “stagnation or regression“ – which suggests that many goals are not only off track but are worsening in some regions.
One of the reasons for this dismal progress – besides wars and the pandemic – is the accelerating climate crisis. Climate resilience is crucial to advance the SDGs. The interdependencies between environmental degradation and sustainable development emphasizes the insurance industry‘s potential to contribute to safeguarding the progress towards the SDGs.
However, insurance is only directly mentioned in one SDG target (SDG 8.10 on financial access) – which is a gross understatement of the insurance industry‘s role. There are numerous direct and indirect linkages between the insurance sector and the 17 SDGs. For example, the insurance industry can play a pivotal role by providing financial protection against climate risks, directly affecting 30% of the SDG targets. Furthermore, by integrating resilience-building measures, such as nature-based solutions, into their product offerings, the insurance industry has the potential to safeguard progress towards 81% of the SDG targets.
This positive correlation between insurance and SDGs can be measured. Countries that spend more of their economic output on insurance tend to show better progress on the SDGs, reflecting the critical role of risk mitigation in sustainable development. For example, for every 1% increase in P & C insurance penetration, the SDG Index increases by an average of 5.8 points.
We propose that a virtuous cycle of profitable insurance and resilient sustainability can be created. Realizing this potential will require overcoming obstacles such as short-term financial pressures, although in the long run, financial stability and environmental stewardship are mutually reinforcing, rather than competing priorities. Thus, regulators should provide frameworks that make sustainability a competitive advantage in the insurance industry, for example by implementing firm caps on insured and financed carbon emissions to support the achievement of net-zero goals.
The insurance industry itself can greatly amplify its contribution to sustainability by prioritizing resilience-focused products, promoting inclusive access to financial protection, fully integrating ESG criteria and strengthening measurement and reporting standards. Each of these strategies not only strengthens the sector’s alignment with SDGs but also reinforces insurers‘ long-term value proposition as essential partners in building a resilient and equitable future.
The comprehensive report for you here.
What to Watch this week
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President Trump signed a flurry of executive orders on his first day as the new President of the US, including a withdrawal from the Paris Accords and the WHO. But cracking down on unauthorized and legal immigration topped the agenda. We expect the number of deportations per year to reach 500,000, which could stall US population growth, pushing the economy’s potential growth below +2% by 2026. The President will likely announce tariff hikes on 1 February against China and potentially the EU, Mexico, and Canada. Executive orders were also signed to boost oil & gas production and unravel green-friendly policies, especially for electric vehicles. Overall, some policies could be inconsistent with each other, such as maintaining high growth while reducing inflation. Ultimately, the success of Trumponomics will mostly hinge on the administration's ability to substantially reduce the public deficit, which would lead to lower inflation and lower interest rates.
Central banks: Red light, green light. The coming days will be packed with central bank decisions, but not everyone is driving in the same direction. The Bank of Japan will be on the starting block on Friday, likely raising its policy rate by 25bps to 0.50%. The Fed meeting follows on 29 January, and we expect a pause in its easing cycle (Fed Funds rate target in the 4.25-4.5% bound) after three consecutive rate cuts in end-2024 amid persistent core inflationary pressures. With policies likely to keep inflation above target, and political pressure on the Fed to favor growth, we still see little scope for further decreases this year. We still expect only one last 25bps rate cut in March, which will keep the Fed Funds rate in the 4-4.25% bound for the rest of the year. In contrast, the ECB (30 January) is set to continue its easing cycle this year, lowering the deposit rate again by 25bps to 2.75% as economic headwinds persist. We expect 25bps cuts at each of the following meetings, reaching a terminal rate of 2.0% by June 2025. Lastly, the Bank of England is likely to cut the bank rate by 25bps on 06 February, and to cut in one of every two meetings until Q3 2025 as it balances weak economic activity and sticky inflation.
China: A slippery trade surplus in the year of the snake. China ended the year of the dragon with a fiery trade surplus of nearly USD1trn, boosted by exports to the US at the end of the year ahead of the looming trade war. But the year of the snake will be more slippery, with President Trump warning of setting 10% tariffs against China as soon as 1 February. While details are still lacking, we estimate that China’s export losses would range between USD22bn and USD57bn over 2025-2026 in a contained trade war scenario. Weaker export prices and currency may partly mitigate the impact, though we expect a milder CNY depreciation this time around (2.6% in 2025 vs. 10% in 2018) as Chinese authorities worry about confidence effects and the risk of capital flight. The USDCNY rate is unlikely to exceed 7.50 in 2025.
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Hi, thank you for this insightful report. Greatly interested by the section on the Fuldauer et al. Nature Comm. paper, I checked the original paper. Unfortunately, the paper itself does not discuss insurance (the word "insurance" does not appear in the paper even once, except in diagrams where it is conflated with finance). You mention that "by integrating resilience-building measures, such as nature-based solutions, into their product offerings, the insurance industry has the potential to safeguard progress towards 81% of the SDG targets". The Fuldauer et al. paper, however, only says that "adapted utility infrastructure sectors can help safeguard 81% of targets". Is there a mistake here, where "utility infrastructure" has become "insurance" in the Allianz report? If not, can you please let me know where you found the insurance-specific data from in the Fuldauer et al. paper (or supplementary materials)? Thank you.