Credit Crisis

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 wondered about the risks that this financial crisis might pose to 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 are the following sets of questions:

What happened in the financial markets? What were the origins of the crisis, what were its triggers and possible 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?

Even though already more than a year has passed since the first troubles started back in August 2007, we still cannot say whether the crisis is coming to an end soon. In addition, ever new and unexpected events linked to the crisis are driving it so quickly that the original idea of producing a printed report has been postponed in favour of a more reactive and faster approach. This new approach sees the channelling of a diverse set of materials, many of them either directly linked to The Geneva Association’s 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

► G-20 Falls Short on Insurance (Insurance and Finance SC 5)
(7.04.2009) On 7 April 2009, the Financial Times published a letter by The Geneva Association concerning the statement of the G-20 leaders following their London Summit of 2 April 2009.

► Insurance Comments to the G-20 London Summit Leaders' Statement (Insurance and Finance SC 4)
(6.04.2009) by Patrick Liedtke, Secretary General and Managing Director, The Geneva Association.

► Lessons from the Credit Crisis: An Investment Practitioner's Point of View (Insurance and Finance SC 3)
(20.02.2009) Guido Fürer and Jérôme Haegeli want to take stock of what they think should be the lessons learnt from an investment practitioner's point of view in order to avoid repeating the same mistakes in the next crisis, which will without a doubt come unexpectedly as well.

► Navigating the storm
(24.12.2008) In this article from Global Reinsurance Patrick M. Liedtke and Kai-Uwe Schanz provide an overview of the global credit crisis, and an outlook for the future.

► Maintaining stakeholder trust in difficult times: What insurers can do
(4.12.2008) In this article, Kai-Uwe Schanz, Advisor to The Geneva Association and Chairman of Dr. Schanz, Alms & Company, Zurich, discusses the vital importance of stakeholder trust to the insurance industry. He also suggests specific ways of maintaining trust in difficult times such as the current credit crisis and economic downturn.

► 10 Frequently Asked Questions on the Credit Crisis and Insurance (Insurance and Finance SC 2)
(19.11.2008) This contribution about the current credit crisis addresses the key issues that have been at the top of the list of interested parties.

► Credit Crisis and Insurance – A Comment on the Role of the Industry (Insurance and Finance SC 1)
(14.11.2008) In this article on the credit crisis, Geneva Association Secretary General and Managing Director Patrick M. Liedtke comments on the role of insurance during the current crisis and analyses the key difference between insurance and other financial services firms.

Further contributions for downloading

► Insurance Risk Management Response to the Financial Crisis
(5.5.2009) This paper summarises the CRO Forum’s views on the key elements of effective risk management, the differences between insurance and banks’ approaches to risk management, and the importance of economic-based group supervision for cross-border (re)insurers. It covers five major themes which the CRO Forum considers to be adequate responses to the crisis.

► Swiss Re's Economic Forum 2008: The financial crisis and its effects on global insurance – outlook for 2009
(12.12.2008) Swiss Re's senior economists have reviewed the turmoil in the global financial markets in 2008 and provided an outlook for the global economy and world insurance in 2009.

► Dedicated insurers are not a systemic risk
(3.12.2008) D.M. Hofmann and A.P. Lehmann from the Zurich Financial Services Group warn against lumping banks and insurance companies together. They are also of the opinion that the insurance industry has had a stabilizing influence on the financial system in recent times thanks to its anti-cyclical investment behaviour.

► Eight key messages on the financial turmoil
(14.11.2008) The CEA publishes messages on the financial turmoil for the European insurance sector.

► Global insurers take a hit in the third quarter, but ratings should withstand the test
(12.11.2008) Standard & Poor's Ratings Services examines whether, in their view, global insurers can maintain their resilience.

► CRO Forum response to the financial crisis
(23.10.2008) The CRO Forum’s views on the consequences for Enterprise Risk Management and regulation in the insurance industry and the accompanying press release.

► The insurance industry at a time of financial crisis and economic recession
(16.9.2008) Swiss Re Senior Economist Christian Schmidt provides some perspectives for the insurance industry at a time of financial crisis and economic recession.

► Call for Papers

The Geneva Association is pleased to announce a special half issue on Insurance and the Credit Crisis of The Geneva Papers on Risk and Insurance – Issues and Practice , January 2010. More...