Soft landing for the economy, softening market for insurance: Swiss Re experts give midyear assessment
20 June 2007, Zurich
Swiss Re's Economic Research and Consulting unit advised today that the economy is heading for a soft landing, while insurance markets are bracing for an active hurricane season and a general softening. The comments came at the company's Mid-year Economic and Insurance Industry Webcast.
Kurt Karl, who is Swiss Re's Chief Economist, 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.
Thomas Holzheu, also with the company's Economic Research & Consulting unit, said the U.S. property & casualty insurance industry benefited from an unusually mild catastrophe season in 2006. He said the general expectation is that despite a quiet first quarter, experts predict this year's hurricane season to be again above the long-term average.
Holzheu noted the capital strength of the insurance industry is growing due to strong operating profitability, putting pressure on rates and resulting in a slow growth environment going forward. "We should see a continuation in moderating or softening pricing and this will spread also into property lines," said Holzheu.
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%. The 2007 RoE is expected to be around 13%.
- Rate adequacy is still good in most segments and terms and conditions are holding firm.
- Insurers' overall investment results were down in 2006, , particularly driven by lower realized capital gains. We expect rising investment yields, however, this will be insufficient to fully offset softening pricing.
Notes to editors
Swiss Re is the world's leading and most diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company's traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated "AA-" by Standard & Poor's, "Aa2" by Moody's and "A+" by A.M. Best.
Cautionary note on forward-looking statements
Certain statements contained herein are forward-looking. These statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as "anticipate", "assume", "believe", "continue", "estimate", "expect", "foresee", "intend", "may increase" and "may fluctuate" and similar expressions or by future or conditional verbs such as "will", "should", "would" and "could". These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re's actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed or implied by such statements. Such factors include, among others:
- the impact of significant investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connection with any such transactions, including, in the case of acquisitions, issues arising in connection with integrating acquired operations;
- cyclicality of the reinsurance industry;
- changes in general economic conditions, particularly in our core markets;
- uncertainties in estimating reserves;
- the performance of financial markets;
- expected changes in our investment results as a result of the changed composition of our investment assets or changes in our investment policy;
- the frequency, severity and development of insured claim events;
- acts of terrorism and acts of war;
- mortality and morbidity experience;
- policy renewal and lapse rates;
- changes in rating agency policies or practices;
- the lowering or withdrawal of one or more of the financial strength or credit ratings of one or more of our subsidiaries;
- changes in levels of interest rates;
- political risks in the countries in which we operate or in which we insure risks;
- extraordinary events affecting our clients, such as bankruptcies and liquidations;
- risks associated with implementing our business strategies;
- changes in currency exchange rates;
- changes in laws and regulations, including changes in accounting standards and taxation requirements; and
- changes in competitive pressures.
These factors are not exhaustive. We operate in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
In our ongoing efforts to improve the quality and relevance of our publications, we would like to know more about you.
Subscribe To RSS
Subscribe to Newsletters
(Swiss Re Institute) Risk Dialogue Magazine
The Risk Dialogue Magazine is a newsletter exploring future risk topics, featuring multimedia articles from the Swiss Re Institute's events and insights from our global network of experts.
Our sigma publication series provides comprehensive information on the international insurance markets and analyses of economic trends and strategic issues in re/insurance and financial services.
Swiss Re Publications
Our publications share our expertise on issues of concern to our clients, the re/insurance industry and society - from food, health, longevity and financial security to managing climate and natural disaster risk.