2004 Mid-year Economic and Insurance Industry Review and Outlook Teleconference
Swiss Re economic professionals recapped the first half of 2004 and took a look ahead at the next six months and beyond at the U.S. Mid-year Economic and Insurance Industry Review and Outlook Teleconference, Tuesday, June 22, 2004.
Presenters:
Kurt Karl
Chief Economist, Swiss Re Economic Research & Consulting, North America
Thomas Holzheu
Senior Economist, Swiss Re Economic Research & Consulting, North America
For a replay, callers can access a recording of the conference at:
+1 800 642 1687 (US and Canada)
+1 706 645 9291 (international).
Summary:
Swiss Re's chief economist said that strong economic growth, coupled with a slight uptick in inflation, will force the Federal Reserve to raise the federal funds rate to close to 2 percent by the end of 2004.
Additionally, at the company's Mid-year Economic and Insurance Industry Teleconference, it was stated that a rising interest rate environment usually dampens investment results, straining insurance companies' capital base. This will tend to prolong the hard-market conditions through the end of 2005.
"We expect the next year to be good for corporate profits, good for job growth, but a challenging year for investors," said Kurt Karl, Swiss Re's chief economist in North America. "We also expect consumers to remain an engine of growth, but rising interest rates and a spike in commodity prices could dampen consumer spending power."
Regarding the property and casualty insurance business, Thomas Holzheu, Swiss Re's senior economist for that business sector said, "We've seen a significant improvement in underwriting, and believe the hard market will last through 2005.
"Additionally, we foresee moderate growth for the industry as a whole," he added. "With market conditions improving, we expect the rating agencies to follow the market by issuing more upgrades and fewer downgrades by the end of this year or beginning of next year."
Among some other observations made by the economists:
- On June 30, the Federal Open Market Committee is highly likely to raise interest rates by 25 basis points, followed by 25 basis points for the next 11 FOMC meetings
- A large spike in market interest rates, up to 6% for the 10-year Treasury note, is possible over next 12 months as the Fed raises rates
- 2005 could see quite high interest rates, particularly with large deficits
- Higher rates will improve investment results of insurance companies after 2005, but dampen GDP growth
- Credit conditions should continue to improve
- A sharp rise in core inflation is unlikely
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