Swiss Re Economic Forum 2010: Insurers' growth to accelerate

At its annual Economic Forum, Swiss Re chief economists Thomas Hess and Kurt Karl pointed out that growth in the (re)insurance industry would continue to accelerate in 2011 and that most insurance companies had restored their capital to pre-crisis levels. They added that this favourable development applied to life and non-life insurers in both the developed and developing economies. They did, however, point to the risks posed by the sovereign debt difficulties facing some Euro-zone countries and over-regulation of the insurance sector in the wake of the financial crisis. It was also emphasized that the regulatory challenge, coupled with low interest rates, would continue to dampen investment returns.

In their outlook for 2011 and 2012, Hess and Karl forecast the world economy should expand, a development led by the emerging market countries. Inflation would not pose a threat in the short to medium-term in developed economies. There were, however, risks to the recovery, not least of which was the possibility of fresh turmoil in the financial markets caused by the sovereign debt problems besetting some Euro-zone countries. Said Karl:  “Despite the support received from the IMF and the EU, there are still concerns as to whether Greece and Ireland can cope with the problems they face.”

Among the challenges facing the insurance industry, even though its capitalization had improved significantly since the crisis, were low investment yields resulting from very low interest rates coupled with a conservative investment strategy. Commenting on the negative impact of low interest rates generated by expansionary monetary policies in the developed world, Hess said: “Insurers, pension funds and private savers are paying for the cheap financing of governments, and for households and corporations that borrow.” A way to offset this situation, according to Swiss Re’s economists, was to support profitability through more disciplined underwriting.

While the industry welcomed the 2013 introduction of the Solvency II regulatory initiative, there was nevertheless a danger of overly burdensome regulation of the insurance industry. It was important that the implementing measures did not stray too far from the original economic-based principles.

Premium growth in non-life and life insurance was expected to accelerate in 2011, benefiting from the economic recovery and further improvements in financial markets. On the non-life reinsurance front, growth expectations were moderate but profitability was expected to erode as rates declined. Here, too, it was pointed out that superior underwriting skills would be the way to gain a competitive edge in the coming years.  Regarding life reinsurance, stagnation in the developed countries would be offset by annual growth of around 10% in emerging markets.

Published 8 December 2010

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