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The road to recovery The insurance point of view General statements The economic crisis has been a result of the financial crisis The financial crisis has NOT been caused by the insurance activity Insurance has performed very differently from Banking Some investment bank and hedge fund activities could be considered a key factor in the crisis Insurers are victims, not drivers, of systemic risk 2 Size of the insurance activity within the financial sector In Europe: insurers represent 40% of banks’ market cap In USA: insurers represent 34% of banks’ market cap Capital markets(1) represent 55% of the financial sector’s assets The hedge fund industry has an estimated USD 2 trillion in assets under management (1) Investment funds, pension funds and hedge funds 3 Insurance represents only 8% of the assets of the socalled financial sector 114.0 77.0 16.0 Capital markets(1) Banks Insurers USD trillion (1) Investment funds, pension funds and hedge funds 4 Insurance performs differently from Banking Key differences: the insurance contract starts when the client pays the premium Insurers do not have non-performing loans In non life, revenues are the most important factor, not assets Life Assurance: assets and liabilities are matched, and liquidity is not an issue Facts do matter: Financial losses in the banking industry have been 10 times more than insurers’(1) (including credit insurance losses and impairments) Total capital raised by banks since 2007 has been over 20 times the amount raised by insurers(1) (1) Excluding AIG 5 Facts do matter Financial losses(1) Total capital raised(1) 1,700 1,500 x10 x21 170 70 Insurers Banks Insurers Banks USD billion (1) Excluding AIG 6 Insurance performs differently from Banking Insurance has never been affected by a systemic risk despite: – economic crises: years 1973 - 1992 - 2007 – large catastrophic events: Katrina (close to USD 120 bn) and Ike, Gustav, WTC and Lothar (each close to USD 50 bn) Insurance needs recognition from: Lawmakers Regulators Society 7 Insurance needs recognition from lawmakers Lawmakers Resist the easy temptation to increase capital requirements The largest European insurers (60% of the market) passed the most severe stress test to date(1) After all, it’s the policyholders who pay via higher insurance prices (1) Required by the Committee of European Insurance and Occupational Pensions Supervisors 8 Insurance needs recognition from supervisors Supervisors So far supervision has been efficient enough, but the context has changed How could it be improved? Group supervisors with enough power to act effectively Also important: internal oversight Board Internal Auditing Risk Management 9 Insurance needs recognition from society Society Why doesn’t society have a positive view of the insurance industry? It depends on us, the insurers: Insurance is a solidarity-based activity par excellence No economic development without insurance Are we doing something wrong ? 10 The insurance point of view The economic crisis has strengthened the Insurance activity INSURANCE: WINNER in the crisis within the financial sector One of the best-performing sectors of the economy Demographics mean growth for the industry: Health Pensions, annuities and other savings products The emerging markets will drive economic growth Savings rates grow in times of crisis, and people realize the need for insurance 11 We have to make the most of our opportunity An excellent opportunity for the insurance industry The insurance industry is a driver of economic development: over 7% of the world’s GDP Insurance can grow even in very challenging scenarios: 3.4% premium growth in 2008 Developed countries: +1.4% Emerging countries: +21.5% Insurance remains one of the activities with very attractive growth prospects 12 Some external factors that could determine the future Europe – new regulations Solvency II Capital Management Supervision Basle III Relationship between Banking and Insurance sectors Financial-accounting coordination 13 Our homework Distribution is changing, although slowly Companies will have to meet demand for new products and services In Non-Life, companies with the lowest combined ratios (claims + expenses) will be the winners: Growing productivity Sound underwriting Efficient structures In Life Assurance, investments commercial 14 drive and professionalism in Back to basics: the Essence Ethics: good practices Exemplary managerial behaviour Culture of success 15