The global insurance industry faces a tough year ahead, but insurers will see stronger returns from 2012, a senior Swiss Re economist says.

“We are seeing the global economy recovering slowly but with that improvement we predict it will lift premiums,” Swiss Re Chief Economist North America Kurt Karl told insuranceNEWS.com.au.

Dr Karl says Australia is one of the stellar performers in the global economy and that presents a good outlook for local premium growth.

Asia is another bright spot globally, with its economies reporting stronger growth figures and outperforming traditional markets like Europe and the US.

“There have been (economic) problems in Greece and Ireland which will lead to no growth and more risks, but we expect those issues to work out,” he said.

“There is a lot of political will to keep the euro in place and the default issues will be dealt with politically.”

But the economic outlook is still clouded by issues such as unemployment in the UK and US, with both countries reporting shaper rises in numbers.

Again the impact of rising unemployment will flow onto home ownership with implications for the life insurance industry.

Dr Kurt says mortgages drive the UK life insurance business, and with pressure on the average household budgets, this will dampen sales.

While rates are continually to soften, Dr Karl says insurers will maintain profitability by some positive reserve releases.

“But when the insurers turn to negative reserve releases then that will hurt shareholders,” he said.

“In the next two years European and US interest rates should rise and that will affect accounting leading to insurers with lower asset portfolios,” he said.

“The insurance industry became very slow with the downturn with rate softness and we see growth still being very sluggish next year.”