Swiss Re economists note profit potential of underwriting discipline

The Federal Reserve will continue to raise interest rates, pushing the federal funds rate to 4.5% by the middle of 2006 in lieu of the anticipated modest rise in inflation and firm economic growth, according to Swiss Reinsurance’s chief economist Kurt Karl.
Swiss Re also released information reporting that if insurers wish to remain profitable they will have to continue their underwriting discipline as interest rates seem to be dampening investment returns.
“The Fed is moving at a measured pace and we expect a 25 basis point hike after six of the next eight Federal Open Market Committee meetings,” Karl says. “We also expect consumption and business investment to remain engines of growth, though this will be constrained by rising interest rates and higher oil prices. The greatest risk to this outlook stems from higher oil prices – if they hit $80 per barrel, we could see a mild recession.”
Swiss Re’s senior economist for the p&c sector Thomas Holzheu says the Company has seen a significant improvement in underwriting and as such, anticipates that underwriting conditions will remain profitable throughout 2005, serving modest growth. Economists observe that the biggest risk to growth remains rising oil prices and that upon assuming average catastrophe losses for the balance of 2005, the combined ratios will be slightly lower than last year’s.