17 Jun 2008, 14:00 - 16:00 - New York
Swiss Re’s Economic Research and Consulting unit held its annual Mid Year Economic Forum Teleconference on June 17, 2008 in New York. Kurt Karl, Chief U.S. Economist, Thomas Holzheu, Sr. Economist and Milka Kirova Sr. Economist each presented their overview and analysis of the U.S. economy, the Property and Casualty insurance market and the Life and Health insurance market, respectively.
The group advised the reporters on the conference call that the U.S. is likely already in a moderate recession. In addition, non-life premiums are declining along with prices, while life premiums continue to increase, albeit at a slower pace.
Kurt Karl provided an overview of the U.S. economy, noting that he expected the recession to last until late 2008 or early 2009, but not to be too severe. Given the weak economy, he indicated the Fed is unlikely to raise rates until next year.
“The number of housing starts was less than 1.1 million the last 3 months which is consistent with the economy being in recession”, said Karl.
Karl also noted:
- Inflation is expected to decline next year
- The yield on the 10 year T-note will rise to 4.5% next year
- Market volatility will continue into 2009
- Investment yields are likely to be low for insurers
P&C Insurance Industry
Thomas Holzeu said that rates in the U.S. property and casualty insurance industry will continue to decline through 2009. He said that weather related natural catastrophes are assumed to increase to historic averages, resulting in higher combined ratios this year and next.
“Disciplined underwriting, protecting earnings and capital management are necessary for insurers to weather this soft market cycle”, said Holzheu.
L&H Insurance Industry
The growth in premiums in the U.S. life and health insurance industry is likely to slow to 4.6% in 2008, according to Milka Kirova. A weakening in new business and higher surrenders have slowed growth, which is expected to rebound once the economy improves.
“The fundamentals are solid in the life and health insurance industry”, said Kirova. “Product demand going forward will be driven by changes in consumers’ financial needs as they transition from the accumulation phase to the distribution phase of their lifecycle.”