Mid-year Economic and Insurance Industry Review and Outlook Webcast

Swiss Re economists recapped the first half of 2007 and looked ahead at the next six months and beyond during the U.S. Mid-year Economic and Insurance Industry Review and Outlook Webcast.

Date: 20 Jun 2007, 14:11 (false local time)

Swiss Re’s Chief Economist today said the economy is heading for a soft landing, while Thomas Holzheu, also with Swiss Re's Economic Research & Consulting, said insurance markets are bracing for a general softening. The comments of Kurt Karl and Thomas Holzheu came at the company’s Mid-year Economic and Insurance Industry Webcast.

Karl said it is increasingly likely the Fed has engineered a soft landing due to moderate economic growth and falling inflation. He said it is unclear if the Fed will cut rates due to the stickiness of the unemployment rate.

“However, I’m still thinking the Fed may cut rates because inflation is falling,” said Karl. “In order to maintain the neutral monetary policy it would have to cut rates.”

Karl also noted:

  • The risk of a recession is about 30% due to the inverted yield curve and weak growth.
  • Growth should accelerate in the second half of 2007 as housing markets stabilize.
  • The global economy is doing well. Europe, Asia, Japan and emerging markets are all in very good shape.

Holzheu said U.S. property & casualty insurance industry benefited from an unusually mild catastrophe season in the first quarter of 2007, following a quiet 2006. He said the general expectation is that the ‘07 hurricane season would be above average from what was experienced in the last couple of years.

Holzheu noted the capital strength of the insurance industry is growing due to profitability, resulting in a slow growth environment going forward.

“We should see a continuation in moderating or softening pricing and this will spread more into property lines,” said Holzheu. “Competition will increase due to factors such as the state of Florida taking on more natural catastrophe risk.”

Among Holzheu’s observations:

  • Strong underwriting fundamentals helped push the industry’s return on equity to 14.6% in 2006, a marked improvement over 2005’s RoE of 11.4%.
  • Rate adequacy is still good in most segments and terms and conditions are holding firm.
  • Insurers’ overall investment yields are down, particularly in the area of capital gains, and overall investment yields will be insufficient to offset softening pricing.


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