We're Coping in Low-Rate Environment: Zurich CEO
The decision by the U.S. Federal Reserve earlier this week to keep interest rates near zero through 2014, is going to likely have an impact on industries like insurance that depend on investment income. But Zurich Financial Services CEO Martin Senn says the insurer is coping well in a low interest rate environment as it is not solely reliant on such income.
"What you have to do is make sure that the product you are selling is not dependent only on the income on investments and that the model all together is not dependant on developments on financial markets," Senn told CNBC on the sidelines of theWorld Economic Forum in Davos.
He added that "We obviously have a big part of our investment income out of our fixed income investments, bond investments, and each time you do a reinvestment into the bonds, you do that at lower rates. And that's the immediate impact to the insurance industry."
But he said that Zurich Financial was dealing well with the current situation. "If you have high guarantees set in the life business, which you have to meet, then obviously you do have a challenge. In our case, this is not the situation."
On Thursday, the firm announced that it expects to see a net loss of between $200 million and $250 million in the fourth quarter of 2011 as a result of floods in Thailand and the increased cost of earthquakes in New Zealand.
The insurance business could also be impacted by the austerity measures being implemented in Europe that will eat into the continent's growth, Senn said.
"It's probably the consensus that within Europe economies will grow substantially lower, maybe drift into recession and with that there will be lower demand for general insurance products," he said.