“You’re talking about a very nasty scenario,” he said. “It’s not something you want to think too hard about if you’re having difficulty sleeping.”
December 1, 2011 – 1:30 pm ET
Analysts and other industry experts have previously said insurers would be forced to share losses with customers and rely on regulators to be lenient if Italy, the world’s third-biggest debtor nation, were to default.
Swiss Re economists’ base scenario—the one they consider most likely—is that European Union governments take sufficient measures to prevent defaults by big euro zone nations.
The insurance industry also faces challenges from persistently low interest rates and a potential economic slowdown in emerging markets, which many European and U.S. insurers had been relying on to offset stagnant growth at home, Swiss Re said in its annual outlook report.
Low interest rates make it harder for insurers to replace maturing assets with investments that yield comparable returns, hindering their ability to pay guaranteed rates offered with some long-term savings policies.
However, the industry remains well-capitalized overall and should benefit from better economic growth and rising nonlife insurance prices in 2013, Swiss Re said.