Despite signs that the economy will rebound, the slow growth experienced during the first quarter of 2007 should put insurers in a cautious frame of mind, according to economists at Swiss Re.

“There's going to be less business,” said Kurt Karl, chief U.S. economist for Swiss Re, and he added, “You'll have fewer people employed, and fewer cars and fewer homes.”

In a report on the U.S. economic outlook, Mr. Karl and Arun Raha, a senior economist for Swiss Re, noted that while growth slowed in the first half, “the financial markets are signaling a second half turnaround, despite continued signs of mixed activity from economic data.”

Mr. Karl said that “the insurance industry goes a little faster” than the nominal Gross Domestic Product, and that insurers should expect to feel the impact of slowed growth on other areas of the economy that would then require insurance coverage.

Overall, however, he said that the effects should not be overwhelming, and that they shouldn't be a big problem to the majority of insurers.

Equally, Mr. Karl noted that there are issues that should paid attention to on the investment side for insurers, but that they should not cause any severe problems.

Among the major investment issues, he said, is the growth in the equity markets. Those markets, he noted, “are doing very well,” currently, but could be in line for a correction in the near future.

However, Mr. Karl said that he did not expect any correction in the markets to be severe, and that most insurers should be able to handle the downturn, provided they have not left themselves with enormous market exposure.

The other major investment issue, he said, is that “yields are rising,” although he noted that they are “still quite low.” However, Mr. Karl noted that given the current pace at which yields are rising, they have created an environment that insurers should look at very closely.

“It's time to go long on duration,” he said, adding that insurers should consider whether to “load up” on quality bonds.

Special Reports /

Swiss Re Economists Advocate Caution By Insurers

Related Stories

Recommended For You