Property-casualty insurance rates will remain adequate to sustain the industry for the time being despite downward pressure, said a report from Swiss Re economists today.
Such pressure will result in the industry combined ratio rising five points this year to 97, company experts said in a conference call this morning.
Thomas Holzheu, economist for the Zurich-based company, said that while rate adequacy along with terms and conditions are still good in most segments, the growing capital strength of the industry could put pressure in that area.
“We should see a continuation in moderating or softening pricing,” he said.
In addition, he does not see a return of 2006's benign catastrophe season. “We are in a phase of above-average water temperatures in the Caribbean and North Atlantic and need to expect heightened hurricane activity for the coming years,” he said.
Investment yields will rise to 5 percent, up from last year's 4.8 figure. “However, this will be fully insufficient to fully offset softening pricing,” he told a conference call this morning.
Strong underwriting fundamentals helped push the industry's return on equity to 15 percent last year – a figure Swiss Re sees dropping two points for 2007.
Kurt Karl, Swiss Re chief economist, said there is about a one in three chance the U.S. economy will experience a recession this year.
But for the most part he would expect a “soft landing” since the Federal Reserve has low enough inflation to be able to cut interest rates if need be.
Growth will accelerate in the second half of the year as the housing market stabilizes. Meanwhile, Europe, Asia and emerging markets are performing well, Swiss Re noted.
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