Prices to Rise into 2005, Swiss Re Predicts

By E.E. Mazier

NU Online News Service, Sept. 20, 9:33 a.m.EST?Property and casualty insurance and reinsurancepremiums will continue to rise at least through 2005, according toSwiss Reinsurance.

The forecast was made yesterday at a conference entitled"Alternative Risk Transfer Solutions in a Time of Shortage" held atSwiss Re's New York offices.

Kurt E. Karl, chief economist in Swiss Re's Economic Researchand Consulting, North America, declared that the hardeninginsurance market "will continue until balance sheets are fixed." Heexpects the hardening market to last until at least 2005.

Similarly, Martin Albers stated that after several dismal yearsof losses and reduced profitability, the p-c insurance-reinsuranceindustry needs to recapitalize, and that rates must remain high toallow this to happen. Mr. Albers is a member of the Swiss Reexecutive board and also heads the Risk Solutions unit of the SwissRe Financial Services Group

The global loss figure for the property-casualtyinsurance-reinsurance industry for 2001 was around $90 billion, andMr. Karl said there are further losses this year on the equityside. Therefore, he expects p-c industry capacity to continue toworsen this year despite price increases.

He also noted that European p-c insurers are more involved inequity than are insurers in the U.S. This means that the equitylosses in Europe this year are substantial. Since the insurancemarket is global, he noted, "this makes a difference for prices inthe U.S."

However, this year's rate increases and tighter terms andconditions should lead to substantially improved underwritingprofitability in the U.S. well into 2004, Mr. Karl said. But thereal question, Mr. Karl said, is how well the equity marketsperform in the coming years.

The alternative risk transfer market has benefited from currentconditions, Mr. Karl and the other panelists stressed. Prices areup, and both self-retentions and captive insurance companies haveincreased.

There is increased interest, particular from insurancecompanies, in alternative risk transfer vehicles such as finitesolutions for loss portfolio transfer, structured finance, and abalancing of self-retention and traditional insurance.

Interest also is up "enormously" for insurance-linkedsecurities. "We are estimating 50 percent to 100 percent increasein catastrophe bonds this year," Mr. Karl said. In these days ofdefaulting corporations, credit solutions also are of increasinginterest to insurers, he added.

Weather solutions--which Mr. Karl said are independent of theinsurance cycle--also are seeing a rise in popularity. This is dueto "new products, new lines, new ways to get coverage," Mr. Karlstated.

As a whole, the ART market today stands at between $25 billionto $30 billion, said Fernando B. Gentil, head of structured financefor the risk solutions unit. This figure has been growing over theyears, he added.

Hans Zimmerman, co-head of Risk Underwriting for the RiskSolutions unit, noted that several multi-year reinsurance contractsare coming up for renewal in 2003 and 2004. For these, he said,there will be "steep increases" in price. But like his colleagueson the panel, Mr. Zimmerman stressed that much depends on how theinvestment markets perform during that time.