Global insurers continue “road to recovery” in 2004: Swiss Re

Financial results for the non-life insurance industry improved significantly in 2003, according to a new sigma report from Swiss Re. In “World Insurance in 2003”, Swiss Re notes that the road to recovery should continue in 2004, assuming average claims levels.
Premium income growth in the non-life market slowed in 2003 to 6%, although this represents double the ten-year average. Since 2000, premium income in the non-life market has grown at a cumulative real rate of 22%, largely as a result of rate increases. In 2003, third party liability stood out in terms of rate hardening, in response to rising claims and the need to strengthen prior year reserves, the report notes.
Underwriting performance was strong in 2003, helped by average claims, and in spite of continued reserve strengthening. “However, the euphoria surrounding the good underwriting results was tempered by the persistently low investment returns,” the report comments. “In spite of significantly lower writedowns, lower interest rates and capital gains from heavily reduced stock portfolios generated meager investment income.” The result is that despite underwriting performance, overall profits remained average for 2003.
Capital remained scarce in 2003 despite injections from the financial markets, so that downgrades were the order of the day for many insurers to start 2003 and solvency margins remained low.
In 2004, rates are expected to stabilize, while demand should grow in light of improved overall economic conditions. However, insurers’ legacy of adverse development and relatively low equity base should ensure rates do not fall quickly, meaning results for 2004 could well exceed 2003.