Swiss Re Sees 'Prolonged Hard Market'

Swiss Re Sees 'Prolonged Hard Market'

NU Online News Service, June 25, 2:35 p.m. EDT, New York?Swiss Re's senior economist commented today that he believes property-casualty insurers will continue hard-market pricing despite an upsurge in underwriting profits.

Thomas Holzheu, senior economist for the Zurich, Switzerland-headquartered reinsurance giant, said that underwriting earnings have staged a "rapid comeback," but the industry's overall profitability is still suffering from higher reserving and poor-performing stock markets.

"This points to a continued hard market due to capacity constraints, and a push by insurers to pull back from expansion and focus on core areas of expertise," Mr. Holzheu predicted.

He noted that the pressure to boost rates further will still come from "a tight capital base, deficient loss reserves, high loss-cost trends and low investment income."

The U.S. p-c industry is still on a path of strengthening the core business and restoring underwriting profitability, Mr. Holzheu said. "However, capital losses and adverse reserves development overshadowed this positive trend in last year's financial results," he said.

Looking at the overall U.S. economic landscape, Swiss Re also predicted that things will finally start to look better in the second half of 2003, as businesses see the benefits of tax cuts, the weak dollar, falling oil prices and low interest rates.

Kurt Karl, the company's chief economist, added, "Positive indications are increasing as deflationary risks decline and interest rates remain low and stable. Fed actions along with tax cuts and deficit spending should slowly improve economic activity."

His comments were made in advance of the Federal Reserve announcement today that it was cutting a key short-term interest rate by a one-quarter percentage point.