Everyone knows (well… at least I hope those who read this blog) that the insurance sector has weathered the financial storm well.
Following the worst recession since the 1930s, the world economy is starting to grow again, and the insurance and reinsurance markets have passed a severe stress test. As the crisis rolled, insurance kept being written, claims were paid. While companies struggled to keep their book value and the other side of the balance sheet took a nose dive, the capital requirements many had complained about keep everyone’s (well almost) head above water.
AIG, however, showed weakness in risk management and lack of supervision of its financial services activities. And while its insurance side kept on performing well, the problems faced by AIG may in fact lead to further – unwelcome - supervision and regulation.
On Monday, in its Global Insurance Review 2009 and Outlook 2010, Swiss Re said they did not expect capital requirements to be raised. But added: “In the US it is discussed only in the context of the systemic risk discussion. In Europe, it is discussed in a broader context (Solvency II)”, adding that a tightening of capital requirements was “unlikely”. But they raised a red flag saying that insurers and the public should “closely monitor” the proposals and said: “Much higher capital requirements, if implemented, would push insurers into more conservative investments, perhaps even forcing life insurers to cease offering guaranteed products.”
Thomas Hess, Swiss Re’s Chief Economist (of whom I am a huge fan) said in the briefing: “Such a regulatory change would not be in the interest of governments.”
Let’s see if sense prevails with the regulators.