Insurance profits continue, but pace slackens in 2005: Swiss Re

In its annual review of insurance and reinsurance markets, Swiss Re predicts that the industry will continue to post profits in 2005, but the pace of growth will drop off as the market softens.
In fact, profitability should continue into 2006, says Thomas Hess, Swiss Re chief economist. However, challenges remain, he adds, including capital markets which are expected to remain “sluggish” through the remainder of 2005.
Despite the apparent slowdown in premium growth, Hess nonetheless remains confident insurers will hold the line on underwriting. “Insurers are continuing to rebuild their financial strength. The focus remains on underwriting quality, even as rates look like having peaked, discipline is being maintained. As a consequence, prices will stay at attractive levels, while top line growth is likely to be slower than in recent years.”
From the investor’s perspective, insurer stocks have not significantly increased in attractiveness, despite industry profitability. Bob Yates, global head of research at Fox-Pitt Kelton says that investors are “cautious” about insurance stocks despite evidence that the industry is in a relatively good position to handle the downturn in the cycle.