Swiss Re: Market Impacts Will Keep Prices Hard

"Global capital funds of the property-casualty insurers declined approximately $180 billion–or 25 percent–since their historical peak in early 2000," Mr. Holzheu said.

He added that the environment has changed significantly over the past year, influenced by several factors including record-high insured losses in 2001, a new and unprecedented level of terrorism threat, a stock market collapse, recession and credit concerns, as well as continued low interest rates.

"The capital markets continue to reinforce the hardening of the market, which is expected to last longer than previous cycles, due to both the global shortage of quality capital, along with increased risk exposures," Mr. Holzheu said.

Andreas Beerli, chief executive of Swiss Re Americas Division, said at the conference that the continuing volatility in equity markets mean that investment returns can no longer compensate for poor underwriting results.

Achieving profitability, he said, will now involve getting back to basics–including skillful underwriting, adequate pricing, intensified risk research and controlled exposure.

"For the industry to regain its collective health, getting the combined ratio of all lines under 100 percent is paramount. That figure can be reached through better identifying perils, restricting covers, and assessing the correlation among lines of businesses, assets and liabilities," Mr. Beerli said.

Additionally, Mr. Beerli advised that insurers must manage terrorism exposure carefully through fundamentally sound underwriting following the passage of the new terrorism insurance law.

He also suggested that an industry-wide reorganization and reorientation of internal control and steering processes would be helpful in combating corporate governance failures that can affect the industry's credit exposure.