Primary property and casualty insurers will need to increase rates in 2010 as they will continue to see poor returns on their investments next year, Swiss Re's top economist predicts.
Chief Economist Thomas Hess said 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 global economy.
He cited continued evidence that especially for U.S. insurers, carrier investment portfolios will not produce enough profitability to sustain them, making it necessary for carriers to increase rates so they can maintain bottom-line growth.
Reinsurers have seen growth in their rates in 2009, and Mr. Hess predicted that primary property and casualty insurers can expect to follow suit in 2010.
Examining the economic crisis, the Swiss Re expert said insurers survived an extreme stress test when faced with the most severe economic crisis since The Great Depression of the 1930s. The major lesson from the crisis was that loose monetary policy allowed for unbridled expansion of lending–which turned out to be the primary cause for the severe economic disruption, he explained.
Insurers avoided this disaster, according to 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.
For 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 also noted that unemployment, which is high in the United States, is lower in Europe because of short-term labor support programs by government that are nearing their end. He said the unemployment rate could rise there as such subsidy programs conclude.
Reflecting on emerging markets, Clarence Wong, Swiss Re's chief economist in Asia, said insurance lines are expected to grow throughout the region. The industry will see greater transparency and more partnerships between public and private entities in dealing with catastrophe risks.
Dubai World's debt crisis would have "no significant impact" on insurers, Mr. Wong said during a question-and-answer segment following the formal presentations. There may be some exposure to some non-life risks, such as construction coverage, but it would be minimal, he added.
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.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.