Insurers escape worst of crisis

While the insurance industry’s involvement in capital markets has increased in recent years, it has managed to escape the worst of the current crisis, according to a report by Zurich Financial Services.

Zurich Financial Services International Advisory Council member and economics consultant Marian Bell said not only have insurers been investing in assets traded in the capital markets, they have been increasingly involved in the securitisation of assets and liabilities, with insurance-linked securities (ILS) also being traded in capital markets.

According to Bell’s report, which provides an insurance industry perspective on the financial crisis, exposure to the current crisis by insurers appears to be rather limited.

“This is not surprising. The exposure of reinsurers to asset backed securities markets experiencing liquidity pressures or in funds and investment companies with exposures to such markets is estimated at maybe no more than 1 per cent of assets in aggregate.

“Nevertheless, there have been some losses in the insurance sector. These have largely been on the liability side, predominantly related to the credit insurance activities of the specialist bond insurers and other mortgage insurers,” she said.

Bell said while the insurance industry has played little role in the evolution of the current crisis, many of the lessons to be learned have relevance for the industry.

“The insurance industry may, for instance, want to reflect on its measurement and management of risk, stress testing, approach to investments, treatment of off-balance sheet vehicles, assessment of capital adequacy, and methods of employee remuneration.”