NU Online News Service, July 6, 3:10 p.m.EDT

Premium growth is expected to continue throughout 2011 as theglobal economy recovers; however, the industry may be challenged byreserve adequacy issues, stricter regulations and rising combinedratios, according to a new report.

In its latest sigma study, “World Insurance in 2010,” Swiss Resays the global insurance industry returned to positive growth in2010 after two years of falling premium volume. For non-lifeinsurance, global premiums climbed 2.1 percent in 2010, withemerging Asia and newly industrialized countries in the regiondriving the growth.

“On the back of a very solid economic performance, non-lifepremiums in emerging Asia sharply increased by 22 percent, boostedby a 28 percent premium increase in China,” the report says. Koreasaw 15 percent growth in premiums, while Singapore saw 8.1 percentgrowth.

Premium growth was also strong in the Middle East, Central Asiaand Latin America.

In Europe and the U.S., however, Swiss Re says growth wassluggish, reflecting the ongoing soft-market pricing.

Despite a return to premium growth, though, overallprofitability remained low, with an after-tax return on equity of 6percent due to soft pricing and low interest rates.

Swiss Re says, “Underwriting results deteriorated further in2010. The average combined ratio of the eight leading markets roseto 103, compared to 101 in 2009, but was 95 as recently as 2006.The actual underwriting profitability, however, was likely to beeven worse, as 2010 results from the U.S. and large Europeaninsurers suggest that the 2010 underwriting results were supportedby reserve releases of about four percentage points.”

Underwriting results fell the most in the U.S., and werenegative in large European markets due to poor motor results, SwissRe says. There have been signs of rising rates in some Europeanregions and lines, which will positively influence 2011performance, the report adds.

Overall, by the end of 2010, Swiss Re says P&C capital andsolvency set a new record, with the average solvency of the eightleading markets climbing to 118 percent. This exceeds the previous2007 peak of 115 percent.

Swiss Re also says it expects premium growth to remain strong inemerging markets and to improve in developed markets throughout2011.

However, the report notes that challenges are ahead for theindustry. Rising interest rates could lead to mark-to-market losseson bond portfolios, reserve adequacy is weakening due to theprolonged soft market, and 2011 first-half catastrophe losses havebeen high.

Additionally, Swiss Re says excessive regulation of insurancecould slow growth. “While modern regulatory regimes—such asSolvency II, which takes a risk-based and economic view—wouldsupport insurance growth, policymakers may be tempted to adoptoverly stringent capital requirements and other measures to makethe industry 100 percent crisis-proof,” according to thereport.

Swiss Re notes that such strategies could impact theprofitability of insurers and unintentionally harm policyholdersand the economy. For example, the report notes that excessivecapital charges could be undesirable from a macroeconomicperspective, as less risk capital would be available to financegrowth.