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Signs good for insurance industry; Economist


LONDON—This year has been an extraordinary year for the insurance industry with technical results produced by insurers "far superior" to those seen in the mid-1990s when profits were driven by the booming stock market, according to Swiss Reinsurance Co.'s chief economist.

Thomas Hess, chief economist at Zurich Switzerland-based Swiss Re, predicted that next year is expected to be another good year with balance sheets strengthening further for property/casualty insurers, although growth would remain low. "A key question is how the current attractive returns will affect competition and pricing," he said. "There is some risk that the discipline experienced since 2001 may wear down over time," he added.

The big trends favor the insurance industry according to Mr. Hess. The "mega trends" for insurers included the world's aging population and the withdrawal of some governments from providing social security, which provide opportunities for insurers, according to the Swiss Re economist. He added that emerging markets — such as Asia, Latin America and Central and Eastern Europe — offer an increasing amount of opportunity to insurers.

According to Philip Lotz, chief executive officer in Swiss Re's capital management and advisory unit, the market for insurance linked securities, such as catastrophe bonds, is also growing and it is now based on a much wider set of perils ranging from longevity and mortality risk to motor and industrial accident.

Mr. Lutz predicted that the ILS market could grow into $600 billion market by 2016, if the market were to continue at the compound annual growth rate of 39% as achieved between 1997 and 2006.