MONTE CARLO, Monaco — The persistent low-interest-rate environment in developed economies is a primary long-term challenge for the insurance industry, according to three CEOs at the Rendez-vous de Septembre reinsurance meeting this week in Monte Carlo, Monaco.

Michel Lies, CEO of Zurich-based Swiss Re Ltd., said that while prolonged low interest rates appeal to politicians and central bankers focused primarily on economic growth, the low rates have several negative implications for the insurance industry, not the least of which is harming investment income.

“Historically low interest rates are one of our main challenges,” Mr. Lies said.

Torsten Jeworrek, CEO of reinsurance for Munich-based Munich Reinsurance Co., said one underappreciated impact of low interest rates is their role in creating an oversupply in the reinsurance market.

“The capital base of the reinsurance industry has grown in the past 12 to 24 months in spite of catastrophe losses,” he said. “There is one specific reason that leads to this inflation, and it is the low-interest-rate environment.”

Higher capacity ultimately causes many companies to write business that does not truly reflect the cost of the risk, he explained. “It's heating up the competition in an environment where the organic growth is not there.”

Mr. Jeworrek said the low rates coupled with the threat of inflation mean that reinsurers need to be especially careful to maintain underwriting discipline in long-tail businesses such as casualty.

“The longer the tail of the business, such as the casualty business, the more conservative our pricing approach,” he said.

Mr. Lies agrees that the low-interest-rate environment necessitates more judicious underwriting by the industry.

“Insurers need to compensate for a lower investment yield with a lower combined ratio,” he said. “Insurers cannot wait until the tide rises. They must be proactive.”

This cautious underwriting approach with regards to long-tail business is being employed by Jamie Veghte, Stamford, Conn.-based executive vice president and CEO of reinsurance operations for XL Group P.L.C.

“The long-tail markets worry me far more than the short-tail markets right now,” he said.

Mr. Veghte said that while he remains bullish about the long-tail business over the long term, he is willing to forgo deals and sacrifice market share if the deal is not profitable from an underwriting perspective.

“My concern with the long-tail markets is that while we have definitely seen improvement, I am worried that the glide path it is truncated and short-lived,” he said. “I take no joy in shrinking a (line of) business but the economic realities of that business are, in our judgment, inadequate for our shareholders.”