Directors’ report - continued
Outlook
The outlook of the Board of Directors for 2022 remains one of cautious optimism. The global
economic recovery experienced in 2021 should be sustained into 2022 though the growth rate will
not benefit from the low base effect of 2020. High liquidity and a still supportive fiscal and easy
monetary policy should continue to underpin growth. However, down side risks persist in the
form of structural inflationary pressures, supply side bottlenecks, new COVID-19 variants and
geopolitical risk. The insurance market has not been effected as negatively as other sectors of the
economy although the pinch felt by the rest of the economy is having its side effects on our sector
both in the sale of certain products and through inflationary pressures on claims. Within this
context, demand for general business is expected to grow at a lower rate experienced in the last
pre-pandemic years and in the context of Malta’s high savings ratio, the demand for the protection,
savings and investments products in life is expected to remain strong.
Changing customer behaviours, dramatic technological developments, product innovation and the
disruption that is taking place in the insurance industry will require insurance companies to adapt
to be in a position to exploit the many opportunities that will certainly arise.
In terms of prudential and conduct regulation, in 2022 we are looking at a number of important
reviews in the context of Packaged Retail and Insurance- Based Investment Products (PRIIPS), the
Insurance Distribution Directive and Solvency II. Increased regulation in the form of
sustainability-related disclosures emanating from the Sustainable Finance Disclosure Regulation
(SFDR) and the new Corporate Sustainability Reporting Directive (CSRD) is also expected. Of
particular relevance will be the Technical Advice of EIOPA to the European Council on aspects
relating to Retail Investor Protection. The prevailing Anti-Money Laundering Directive will also
feature prominently in the evolving regulatory landscape.
Russia’s invasion of Ukraine is a great human tragedy. This event has significantly increased the
level of political, economic and market risks. Prior to the military escalation witnessed over the
last few weeks, the general outlook was one of a return to pre-pandemic economic and market
conditions driven by a consolidation of the global recovery and the renewed hope for an end to the
pandemic. The latter being dependent on a broad population immunity and from the absence of
any new more vaccine resilient virus strains. Inflationary pressure was expected to lessen in the
second half of the year while monetary policy remains relatively easy. This would normally lead to
a strong cyclical recovery, a return of global mobility and a release of pent-up demand from
consumers and corporates. This backdrop would be supportive of equities but negative for bonds.
However, an aggressive interest rate policy approach would derail the economic recovery and
negatively impact equity asset prices. Certain sectors would be more vulnerable should Central
Banks’ expected tighter monetary policy move faster and further than what the market is currently
pricing in. However, the latest developments, which crystalizing the geopolitical risk have
significantly increased the level of uncertainty. Economic growth is expected to be lower, with
growth in Europe being impacted the most. The economic magnitude of this will depend on how
the conflict unfolds. Different scenarios present different economic outcomes in terms of impact
magnitude and on the eventual recovery. Capital markets are expected to remain volatile and
Central Bank’s policy will need to balance the need to contain inflation and to support the
economic recovery.