Atlas Magazine November 2008

Insurance in the face of the financial crisis

The cataclysm, which has hit the world of finance, has unveiled to the astonished world how a system characterized by speculation, opacity and irresponsible practices has become out of control triggering widespread panic and almost dragging the world economy down to collapse.

Crisis feeding on crisis, the snowball effect has caused a series of failures in banking establishments and a real crash in the stock market.

Standing as one of the peaks of the crisis, the ordeal of the American giant, AIG, saved by the bell thanks to the federal government's bail-out plan, increased fears of a possible contagion among the entire insurance business.

In an effort to reassure a market in pray to irrational drives, big companies' bosses and analysts joined in to underscore the financial soundness of the sector, which, unlike banks, is endowed with a great deal of liquidity. However, the threat is real for the companies having a large exposure to the financial products which sparked off the chaos. The collapse of some insurers and bank insurers is accounted for by their investments in the financial markets rather than by a failure of their underwriting activities.

At the close of the year 2008, it is feared that the renewal of reinsurance treaties will be harder than previously expected. Reinsurers will have to ensure their future technical results in order to offset financial losses. The rising price of reinsurance will inevitably impact the insured who will bear the consequences.

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