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Improving economy will boost property/casualty industry: Swiss Re exec

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GATINEAU, Quebec — An improving global economy will boost the prospects of the property/casualty industry, said Kurt Karl, chief economist and head of Swiss Re Ltd. economic research and consulting.

Delivering an address Tuesday at the National Insurance Conference of Canada in Gatineau, Quebec, Mr. Karl said economic growth in the U.S. and, to a lesser extent, Europe, would help spur premium growth for insurers.

“The U.S. is doing O.K. at this point,” he said. “It has some headwinds, but it is growing.”

Mr. Karl said one potential threat to the economy and the industry, inflation, is receding in the near term.

“Inflation risks are well-contained. We don’t have to worry a lot at this point, but it will be an issue down the line when unemployment rates are lower,” Mr. Karl said, noting that slower growth in medical costs also has helped insurers. “Claims costs have been subdued lately and, as a result, reserve releases have been possible.”

Elsewhere, another potential hindrance to economic growth, government debt, also is becoming less of issue he said.

“For the 12-month moving average, tax revenue growth is up over 12%, while spending growth is down 6%,” Mr. Karl said. “The federal budget deficit is rapidly disappearing in the U.S. We could have a balanced budget in the year 2015.”

Despite the growth, the economic challenge to the insurance industry presented by persistent low interest rates will continue for years to come, Mr. Karl said.

“We are in a low yield environment, so insurers need to have underwriting discipline and we have seen combined ratios coming down,” he said.