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Global Insurance and reinsurance will continue their recoveries in 2010, predicts Swiss Re-
Challenges ahead for insurance include regulatory changes, low asset returns and climate change

1 December 2009 – Swiss Re’s economists predict that insurance and reinsurance will continue their recoveries in 2010, based on the assumption of a “U-shaped” recovery. Balance sheets will further strengthen and profits will increase. Growth will be positive but quite sluggish both in life and non-life insurance. This outlook could be muted by looming regulatory challenges, along with the trend for higher claims for catastrophic events, increasingly driven by climate change.

“The global economy grew in the second half of 2009, but the recovery is fragile. Growth will generally be below trend in the major economies in 2010, but will accelerate modestly in 2011. Monetary policy will shift to tightening in late 2010 at the earliest, and reductions in fiscal stimulus will follow shortly afterwards. As a consequence, growth and inflation are subdued,” said Thomas Hess, Swiss Re’s Chief Economist, at the company’s Economic Forum press conference in London this morning.

By 2011, real GDP growth in OECD countries is expected to be close to its trend of about 2% to 2.5%. Emerging market growth will be substantially higher at 6%. Oil prices are expected to remain fairly close to current levels, rising slightly in 2011 and 2012 when economic activity accelerates. A reduction in monetary easing will push up yields on government bonds, particularly in 2011.

Regulatory challenges for insurers

Given the dimension of the crisis, comparable with the 1930s, the insurance industry did remarkably well. For Thomas Hess, “the crisis was proof of the resilience of the global insurance industry. Insurance and reinsurance functioned routinely throughout the crisis, even at the peak of this extremely severe financial situation, meeting their claims obligations fully and without delay. Taxpayer support, as far as insurers were concerned, was confined to very few companies, and was almost entirely due to the banking-type operations of these companies.” He continued: “Even the financial guarantee insurers, devastated by the crisis, received no government assistance. The non-life and life and health (re)insurance operations remained well capitalised.”

According to Swiss Re’s chief economist, regulatory initiatives in the insurance sector need to address the problems that are distinct for the insurance industry. The banking system’s excessive leverage and capital reserves too low for the risks assumed were not insurance industry problems. Accordingly, the regulatory response should clearly differentiate between the two industries. While it is agreed that banking needs higher capital requirements, it may prove to be counterproductive for insurance. In particular, it may push life insurers into even more conservative investments. According to Thomas Hess, “this could lead to old age provisions being financed by low-risk assets only, such as government bonds. With life insurers and pension funds being prevented from taking risk, an essential source of financing for the real economy will fall away.”

Primary insurers’ balance sheets recovered in 2009, gradual improvements expected in 2010

Since March 2009, balance sheets of non-life and, even more so, of life insurers have recovered substantially. By November 2009, capital was almost at levels achieved in late 2007. Due to the severe global recession, premiums in non-life decreased by estimated 0.3% in 2009, adjusted for inflation. Life insurers are struggling to earn the guaranteed rates promised in prior years, since interest rates are expected to remain low for the foreseeable future. Demand for both non-life and life insurance is expected to improve along with the economy and capital markets in 2010.


(Source: Swiss Re Release)

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