Swiss Re Economists See Underwriting Discipline Key to Profitability

July 1, 2005

Kurt Karl, Swiss Re’s chief economist in North America, led the reinsurer’s Mid-year Economic and Insurance Industry Teleconference yesterday, June 30. The panelists forecast that a “modest rise in inflation accompanied by firm economic growth” would cause the Federal Reserve to continue to raise interest rates, pushing the federal funds rate to 4.5 percent by the middle of next year. As a consequence they agreed that “rising interest rates will dampen investment returns, necessitating continued underwriting discipline for insurers to remain profitable.”

“The Fed is moving at a measured pace, and we expect a 25 basis point hike after six of the next eight Federal Open Market Committee meetings,” Karl stated. “We also expect consumption and business investment to remain engines of growth, though this will be constrained by rising interest rates and higher oil prices. The greatest risk to this outlook stems from higher oil prices – if they hit $80 per barrel, we could see a mild recession.”

Thomas Holzheu, Swiss Re’s senior economist for the P/C business sector noted: “We’ve seen a significant improvement in underwriting, and believe that profitable underwriting conditions will continue through 2005 in most areas. We foresee moderate growth for the industry on the whole.”

Other observations made by the economists included the following:
— On June 30, the FOMC is highly likely to raise interest rates by 25 basis points, followed by 25 basis points for the next three FOMC meetings.
— Economic growth will likely be sustained through 2006.
— The yield on the 10-year Treasury note is projected to rise to 4.6 percent – 5.1 percent by the end of 2005, and near 5.5 percent by the end of 2006, as the economy remains strong, inflation ticks up and the Fed continues raising rates.
— The biggest risk to growth still remains rising oil prices.
— Assuming average catastrophe losses for the balance of 2005, combined ratios should be slightly lower than last year’s.
— Improved underwriting results and investment results will fuel further earnings growth in 2005.

To access the complete presentation and for more information go to the company’s Website at: http://www.swissre.com/. A replay of the teleconference will be available for 14 days following the conference for replay callers, who can access a recording of the proceedings at 888-286-8010 (US) and 617-801-6888 (international). The ID # is 43912582.

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