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A turbulent year for the global economy has had positive and negative effects on the property/ casualty insurance market, experts say.
For Kurt Karl, chief economist at Swiss Re Ltd., the best and worst aspects of the economy's impact on the industry are the same thing—”sovereign debt.”
It has been a great year for insurers holding German or U.S. bonds, he said, but not such a good year for those invested heavily in Italian bonds or the sovereign debt of any other troubled eurozone economy.
The global property/casualty industry demonstrated its “extraordinary resilience in the face of near-record global catastrophe losses,” said Bob Hartwig, president of the New York-based Insurance Information Institute Inc.
The year is likely to go down as the second-costliest ever for insurers with catastrophe losses likely to exceed $75 billion, but a positive sign for insurers has been the halt of the seven-year soft market for U.S. commercial lines business.
It has been a year of slow growth in the economy, resulting in slow premium growth for insurers, said Mr. Karl.
The worst aspect of the economy for insurers in 2011 was low interest rates, a situation expected to last until at least 2013, he said.
“Because approximately 70% of the U.S. P/C insurance industry's in-vested assets are in bonds, the impact on insurers' ability to earn investment income is significant and long-lasting, forcing a rethinking of how property/casualty insurance products are priced, especially long-tailed lines, such as workers compensation or medical professional liability,” he said.