CREDIT CRISIS AND INSURANCE
The credit crisis that has had its origins in the US subprime market troubles in summer 2007 has spread to other countries and other asset classes as well as the wider economy with a vengeance. Already during the first phase of the crisis, when some banks and financial guarantors began running into severe and in some cases ultimately bankruptcy-triggering problems, The Geneva Association was considering the risks that this financial crisis might pose for the insurance industry.
In January 2008, we started to discuss the issue with our members and several Geneva Association expert networks, among them our Amsterdam Circle of Chief Economists. In the process, a dedicated working group of chief economists from some leading international insurance companies set out to analyse the crisis and carry out joint work that would provide special insights into the nature of the credit crisis and its consequences for insurance.
At the centre of the endeavours of this working group were the following sets of questions:
- What happened in the financial markets? What were the origins of the crisis, what were its triggers and possibly reinforcing elements? How did subsequent events develop?
- To what extent was and is the insurance industry affected? How do overall losses compare to the losses of the insurance sector? How should the crisis be interpreted from an insurance point of view? Is there a systematic threat to the insurance industry? Is there a systematic threat emanating from the insurance industry?
- What are the conclusions for the insurance sector? Are there (already) some lessons to be learned? What is the impact on regulatory debates (solvency reforms, IFRS proposals, etc.)? How are newer business trends like securitisation of insurance risks affected?
Following The Geneva Association Board Meeting in January 2009, a special high-level working group was set up to track the G-20 activities and negotiations: the Market Stability Working Group under the chairmanship of Mark Tucker, CEO of Prudential plc and Board member of The Geneva Association. The Market Stability Working Group was coordinated by Patrick M. Liedtke, Secretary General and Managing Director of The Geneva Association, and united leading experts from some of the most prominent international insurance groups, including Allianz, Aviva, AXA, Generali, ING, Prudential Financial, Prudential plc, Munich Re, SCOR, Swiss Re, Tokyo Marine, and Zurich Financial. The group prepared an open letter to the G-20 Finance Ministers which is downloadable below.
Now that more than two years have passed since the first troubles started back in August 2007, it seems that the crisis is moving towards its resolution phase. As much as The Geneva Association has been active during the first critical stages of the crisis and will continue its diligent work and analysis through the coming stages. A continuous stream of publications will go on providing background materials and special insights into the key aspects on how to deal with the crisis aftermath, lessons learned and actions to be considered. Most of the texts are either directly linked to The Geneva Association’s own efforts or based on work at member companies and partnering institutions. The Geneva Association website is making this material available to everybody who has an interest in understanding the credit crisis from an insurance point of view.
Geneva Association contributions for downloading
► Key Financial Stability Issues in Insurance—An account of The Geneva Association's ongoing dialogue on systemic risk with regulators and policy-makers