But challenging market conditions lie ahead
Fitch Ratings has assigned a stable outlook for the Swiss non-life insurance sector as insurers remain on the path of underwriting discipline in the face of more challenging market conditions.
In its first special report on the Swiss insurance market, the agency commented that insurers' efforts to restructure their businesses after large losses in 2001 and 2002 are beginning to bear fruit.
Fitch pointed to positive developments within the non-life market, namely recovering premium levels and the bolstering of capital reserves. In addition, in light of recent regulatory action, Fitch viewed the overall industry's attitude toward systemic change positively.
However, the agency also pointed out that there are some signs that indicate intensifying competition as the industry enters an increasingly soft market.
“A general economic downturn would have negative effects on premium growth that will hurt the industry's profitability.
The agency said: ‘Since 2003, market participants have actively pursued restructuring strategies to limit future challenges similar to those experienced during the stock market crash of 2002 and the subsequent market downturn. There was also a return to profitability in 2006, as no natural catastrophes challenged insurers' abilities to meet their commitments. Furthermore, the favourable investment environment of 2005-mid-2007 has resulted in respectable investment returns, bolstering insurers' bottom lines. The current credit problems stemming from sub-prime lending losses have largely bypassed primary insurers owing to their conservative investment strategies.’
Fitch expects challenging market conditions in 2008, it said, interest rates may be lowered, once again testing insurers' abilities to generate adequate investment returns.
Added Fitch: ‘A general economic downturn would have negative effects on premium growth that will hurt the industry's profitability.’