World’s Insurance Sector is Pessimistic About Macro-Economic Outlook

Stan Nahkor

PricewaterhouseCoopers

March 11, 2009

World’s Insurance Sector is Pessimistic About Macro-Economic Outlook

The new Insurance Banana Skins survey, conducted by the CSFI in association with PricewaterhouseCoopers (PwC), shows how respondents rank the risks facing the industry. Global survey results show that the ability to turn in a strong investment performance is seen as the key challenge facing the insurance industry as it manages its way through the financial downturn.

The latest Insurance Banana Skins survey shows that without the stable investment returns they have depended upon, insurance companies are facing an uncertain future in what is proving to be the worst business crisis in decades. This is in sharp contrast to the previous survey in 2007 when the top focus was on operational risks such as too much regulation. This year, market risks barely featured in the top ten – signifying a major shift in risk perceptions due to the crisis.

The Top 10 risks based on current survey were as follows:

 

1 Investment performance 

2 Equity markets 

3 Capital availability 

4 Macro-economic trends

5 Too much regulation

6 Risk management techniques

7 Reinsurance security 

8 Complex instruments

9 Actuarial assumptions 

10 Long tail liabilities

The survey also shows that global industry is seen to be less well prepared to handle risk than it was in 2007. Only four per cent of respondents thought that insurance companies were well prepared compared with 21 per cent last time.

Whilst the top risks identified in the survey are not initially surprising it is salutary to see how markedly the perception of key risks has changed since 2007 and how consistent the views of key risks are around the world.

The industry is now operating in the worst economic downturn seen in decades which has led not only to a major reappraisal of key risks but also a concern that the industry is 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.