3/26/2009 8:06:02 AM
 
 
SANCHIA TEMKIN

Professional Services Editor

INSURANCE companies globally are facing an uncertain future in what is proving to be the worst financial crisis in decades.

The ability of insurance companies to get through the financial crisis depends above all on their investment performance achieving sufficient returns to protect capital, remain profitable and meet commitments to customers, according to a new study released yesterday by the Centre for the Study of Financial Innovation in association with PricewaterhouseCoopers (PwC).

With more than 400 responses from 39 countries, including seven South African insurance companies, the new Insurance Banana Skins survey shows how companies rank the risks facing the industry.

High on the list was the macro economic outlook and its effect on the insurance industry. Lower business volumes were expected to put strains on profitability and capital in many parts of the world.

Barry Stott, PwC financial services director, said: “While the top risks identified in the survey are not initially surprising it is salutary to see how markedly the perception of key risks have changed since 2007 and how consistent the views of key risks are around the world.”

Stott said that the insurance industry was operating in the worst economic downturn in decades which had led not only to a major reappraisal of key risks but also to a concern that the industry was not as well placed to deal with them as it once thought.

“Responding to these challenges and embedding good risk management practice across organisations is critical if the industry is to emerge from this cycle in a better position,” he said. The risk of too much regulation had fallen from the top position it occupied in the previous survey to number five in the new study. It had been overtaken by more urgent issues such as the availability of capital.

There was widespread concern among insurance companies that the crisis would trigger a regulatory crackdown on the financial sector which would put pressure on the sector to increase capital and take on more compliance costs at a time when resources were very stretched, the study said. The survey also showed that the industry was less well prepared to handle risk than it was in 2007. Only 4% of companies thought that organisations were well prepared, compared with 21% last time. Ilse French, PwC insurance, technical and knowledge management director, said: “For the life industry, the downturn is likely to hit the savings business, particularly if there is an extended period of low interest rates. On the non-life side, the main concerns are with the outlook for premiums, and a possible surge in claims, including those motivated by fraud.”

temkins@bdfm.co.za
 
 
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