Swiss Re's insurance outlook for 2014/15 sees emerging markets driving premium growth, while alternative capital focuses on well-modelled risks.
In a presentation in London, Dr Kurt Karl, Chief Economist at the reinsurer, described the insurance market cycle as stable to slightly increasing. "Never before has there been a period where prices have turned down so sharply and then flatten out-an L rather than a V-shaped recovery", he told media at the Economic Forum event.
"There is no clear turning point for prices", said Dr Karl, noting that reinsurers are under pressure from alternative capital providers. The growing market for alternative capital is likely to keep reinsurance rates under pressure, the Zurich-based reinsurer predicts. According to Swiss Re, total worldwide insurance premiums are set to rise as the global economic recovery gathers momentum.
The acceleration in global economic growth seen in 2013 will continue into 2014, according to Dr Karl who predicted that global insurance premiums would recover and reach a 4 per cent growth rate globally in 2014/2015, supported by the improving global economy. "Global economic growth will give premiums a lift", he said.
According to Swiss Re, there are two key risks that could derail global economic growth-a fiscal policy error in the US (regarding the debt ceiling and budget agreements) and a policy error leading to a renewed eurozone crisis. A hard landing for the Chinese economy, a faltering Japanese economy or an oil price shock are also key risks, but would only dampen growth, according to Dr Karl.
Higher interest rates would be good for insurers, but the benefits would not be immediately apparent. Insurers' profits are likely to be low in the next few years as they suffer from an interest rate legacy, said Dr Karl.
Dr Karl does not believe companies should be overly concerned with inflation. Inflation risks are well contained for now, although the long-term outlook is more uncertain, he said.
Such is the interest in the insurance sector from pension funds and other capital market investors that 2013 is expected to become the second strongest year for catastrophe bonds issuance in history.
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