Insurers’ core business model likely to withstand credit crisis

Insurers’ core business models — underwriting risks — will likely not be changed as a result of the ongoing credit crisis, asserts Patrick Liedtke, secretary general and managing director of The Geneva Association.
The Geneva Association, also known as the International Association for the Study of Insurance Economics, includes 80 CEOs from global insurance companies.
In his paper, ‘Credit Crisis and Insurance — A Comment on the Role of the Industry,’ Liedtke maintains that there has yet to be any major impairment on the ability of insurance companies to obtain reinsurance or problems between reinsurers and their retrocessioners.
“Insurance companies and their clients have been able to organize the transfer of risks in an orderly fashion and emergency government action was not needed,” Liedtke says.
“This is important to note as it shows how distinct the insurance business is from banking and the provision of other financial services.”
Even though inter-bank lending nearly ground to a halt in some regions for a short period of time, the insurance industry continued to do business, he continued. “While banks and many other financial institutions did not trust their peers anymore and hence restricted counterparty interaction to a minimum, the insurance industry continued to share risks on a normal level.”
But, this does not mean insurance companies are able to escape generally negative developments of major asset classes, Liedtke noted. These asset classes are going down in value not just because of liquidity issues, but also because of new risk assessment, a deteriorating economic climate and a generally less optimistic growth outlook.
The association recently launched a section dedicated to the credit crisis and its impact on the insurance industry on its Web site (www.genevaassociation.org).