NU Online News Service, Dec. 2, 9:34 a.m. EST
Property and casualty insurers will need to increase rates in 2010 as they will continue to see poor returns on their investments next year, a Swiss Re economist said.
Thomas Hess, Swiss Re's chief economist, advised that while the non-life insurance industry fared well through the worst of the financial crisis, there "will need to be a hardening in the primary market."
His comments came in his company's annual presentation by economists on the current and future direction of the world economy.
He cited continued evidence that especially for U.S. insurers, their investment portfolios will not produce enough profitability to sustain them, making it necessary for carriers to increase rate and maintain growth.
Reinsurers have seen growth in their rates in 2009, and Mr. Hess predicted that the property and casualty insurers can expect to do the same in 2010.
Examining the economic crisis, the Swiss Re expert said insurers survived an extreme stress test faced with the most severe economic crisis since the 1930s depression. The major lesson from the crisis was that loose monetary policy, allowing for unbridled expansion of lending, was the primary cause for the severe economic disruption, he explained.
Insurers avoided this disaster, said Mr. Hess, because they were more concerned with protecting the financial positions of their policyholders. This reality, he continued, is a strong argument against bringing insurers into the same regulatory fold as bankers.
On the world economy, Mr. Hess said the worst is over, but the recovery will be a slow and cautious one that will depend on government actions to keep it going.
He noted too that unemployment, which is high in the United States, is lower in Europe because of short-term labor programs that are nearing their end. He said the unemployment rate could rise there as the programs end.
Reflecting on emerging markets, Clarence Wong, Swiss Re's chief economist in Asia, said insurance lines are expected to grow throughout Asia. The industry will see greater transparency and greater partnership between public and private entities in dealing with catastrophe risks.
During a question-and-answer segment of the presentation, Mr. Wong said Dubai World's debt crisis would have "no significant impact" on insurers. There may be some exposure to some non-life risks, such as construction, but it would be minimal.
Matt Weber, a member of Swiss Re's executive board and head of the property and specialty division, said the demand for catastrophe insurance and reinsurance is on the increase. That demand is expected to continue as exposures grow and climate change increases the potential for losses.
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