A combination of investment and regulatory risk is clouding the economic picture for the global insurance industry according to economists at Swiss Re.
Speaking at the company’s Economic Forum, Swiss Re U.S. Chief Economist Kurt Karl predicted modest economic growth in the U.S. but warned that turmoil in the financial markets could imperil the recovery. "Although the recovery is nearly 18 months old and broadening, investor trust in its continuation is still weak,” he said. “Instability continues in several important real estate markets including the US, Ireland and Spain. Despite the support received from the International Monetary Fund and the European Union, there are still concerns as to whether Greece and Ireland can cope with the problems they face."
Moreover, the pervasive low interest rates resulting from expansionary monetary policy in developed economies remain a key challenge for insurance companies, added Thomas Hess, Swiss Re's Chief Economist.
Another area of concern is the risk that systemic risk concerns stemming from the financial crisis will lead to over-regulation in the insurance industry. Karl said that while the EU Solvency II regulatory initiative is generally welcome, it may lead to higher capital requirements for many insurers. "Regulators' overly conservative view of the insurance sector is not justified: insurers emerged from the crisis largely unscathed and banks were found to be the source of the problem,” he said. “While the insurance industry does not object to being part of systemic risk monitoring efforts as a means of averting future crises, it opposes the systemic risk supervision of insurance groups because its core insurance activities are not a source of systemic risk.”
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Corrected December 7, 2010 at 11:19AM: yes