Atlas Magazine June 2009

End of cycle

With spring knocking on our doorsteps, insurers start publishing their 2009 quarterly results. The focus is on the business leaders whose bill of health is anxiously awaited. Swiss Re, scrambling around by December 31, 2008, has recovered by March 31, 2009, while Scor seems to have been back to the good old times.

This tendency to take the temperatures of our suffering giants is doubly worrisome: Will insurance be able to resist the crisis? And which companies will be able to withstand this disease?

The answer to the first question is categorical: Yes, the insurance sector stands up to the crisis, and given the scale of the shock, we may even claim that it does resist the crisis very well. It is worth reminding that the American government has come in support of 580 banks whereas among insurers, only AIG and six life insurers have benefited from public bailout plans to survive.

In fact this crisis marks the end of a cycle whereby financial results have outweighed technical results in terms of importance. During the 1996-2000 period, the net financial result expressed in net premiums percentages rose to 18.8% in the USA, 15.7% in Germany and 15.4% in France, with only Germany and Japan exhibiting positive technical results.

The companies which are not too far away from insurance shall overcome the current crisis, that is, those companies whose economic pattern is in favour of technical result, that is, those companies that are most reactive and which keep on investing.

However, companies which targeted the “all financial” and focused on short-term results, favouring miracle investment products, are witnessing difficulties.

Since the outbreak of AIG's ordeal, insurers' solvency has become a top priority. The European Economic Commission is intent on carrying out stress tests for the top thirty insurance companies operating on the market. Some experts even think that the future belongs to medium-size companies and that gigantism is done with.

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