Category Archives: Insurers and the Economy

Mixed Global Outlook

While 2008 has been touted as a good time to proceed with a global merger and acquisition (M&A) deal, it’s important to bear in mind that the world insurance outlook is mixed. According to the latest world insurance report from Swiss Re sigma, 2008 will see strong life insurance growth but stagnating non-life premiums, at best. Swiss Re projects that as the economic environment and capital markets stabilize, life insurance will resume its strong performance in the medium term, both in terms of growth and profitability. However, non-life premiums are expected to fall in the industrialized economies, though growth in the emerging economies will continue, albeit at a slower rate than in the recent past. Swiss Re notes that a further concern is rising global inflation, which will increase claims costs in liability insurance and other long-tail business lines as well as hamper profitability. The effects of the subprime crisis are expected to be limited. Check out the new edition of the I.I.I. International Insurance Fact Book for other global facts and stats.  

Midwest Floods and Crop Insurers

While it’s too soon to know the extent of insured losses arising from the recent Midwest floods, investment analysts are suggesting that there could be significant losses for multi-peril crop insurers. According to a Lehman Brothers note, some experts are estimating insured losses in excess of $3 billion in Iowa alone. Analyst Jay Gelb warns that growth in the crop insurance market coupled with higher commodity prices could result in the worst crop insurance losses in 15 years. Industry wide gross written premiums for multi peril crop insurance more than doubled to $6.7 billion in 2007, up from $2.9 billion in 2002 (the last year with significant industry losses). Gelb explains that higher input costs associated with crops have caused farmers to purchase more insurance on their harvests through both crop-yield and crop revenue coverage. Check out further I.I.I. info on crop insurance.  

Supporting State Economies

A new study by the National Conference of State Legislatures (NCSL) last week found that with few exceptions, state budgets are deteriorating. In fact, William Pound, NCSL executive director, noted that the fiscal situations have declined so much in some states that they appear to be in recession. So it’s perhaps timely to mention again the key contributions the insurance industry makes to state, local and national economies. The I.I.I. recently released updated 2008 state-specific editions of its online publication “A Firm Foundation†. The Web site shows the myriad ways in which insurers support national and state economies, from offering employment and fueling the capital markets, to defraying the cost of catastrophes and providing financial security and income to individuals and businesses through the payment of claims. Check out the updated California, South Carolina and Texas editions online.

Subprime Crisis and Policy Options

An article by reporter Greg Ip in today’s Wall Street Journal highlights a timely new report from the Paris-based Organization for Economic Cooperation and Development (OECD) on the subprime crisis. In its analysis, the OECD now puts the total estimated loss range from the crisis at between $352 billion to $422 billion. In addition to the headline figures, the OECD also notes that the world is moving to a situation in which individuals bear more and more risks, without necessarily being able to cope with them. This concerns not only credit, including sub-prime mortgages, but also insurance or pensions. According to the OECD, this situation calls for a new culture of risk awareness and financial education mechanisms. What do you make of this warning?  

Industry Billionaires

It’s that time of year again. Forbes has just published its 2008 World Billionaires Survey and a scan of the list reveals a number of industry heavyweights. Top of the list? Berkshire Hathaway chairman Warren Buffett, who ended Microsoft co-founder Bill Gates’ 13-year reign as the world’s richest person, claiming the number one spot with an impressive net worth of $62 billion. Still, Buffett is not included in this year’s list of 11 insurance industry billionaires who have a combined net worth of $26.3 billion. Maurice Greenberg remains the top U.S. insurance industry billionaire contender with a net worth of $1.9 billion. Check out I.I.I. facts on insurance careers and employment.  

American Dream Alive

With Super Tuesday underway, it’s only appropriate we cite a new study showing that the American Dream is alive and well. The MetLife study finds that 86 percent of individuals believe the U.S. economy is headed in the wrong direction, up from 64 percent just one year ago. Despite this collective pessimism, 85 percent of individuals expect their own financial situation to be about the same or even better this year, compared to last year – a sign that the American spirit of personal optimism and self-reliance is holding strong, MetLife says. Still, the findings reveal Americans have growing concerns about energy costs, healthcare costs, and rising levels of personal debt, as well as shrinking government-sponsored benefits.

In fact, more than three-quarters (77 percent) of Americans say they are planning to build their own personal safety nets to protect their family’s financial future. Exactly which products they think should comprise a personal financial safety net differ by generation. Health insurance that continues through retirement and retirement savings plans such as a 401(k) are the top priorities of both Baby Boomers and GenYers. But Boomers rank income annuities and long-term care insurance next, whereas GenYers would include life insurance followed by income annuities in their personal safety net. To help put your financial house in order the I.I.I. has free downloadable personal finance software. Check it out at http://www.myfinancialhouse.org  

Financial Risk Outlook

We head across the pond today, where the U.K. financial regulator has published its annual Financial Risk Outlook. Amid the continuing slowdown in the economy, the FSA’s 2008 report focuses on the risks arising from the events of the second half of 2007 and specifically warns firms and consumers of the risks that could impact them in a less benign economy. Among the risks identified as priority, the FSA notes that tighter economic conditions could increase the incidence or discovery of some types of financial crime or lead to firms’ resources being diverted away from tackling financial crime. An interesting point, given last week’s  revelation concerning a rogue trader who defrauded French bank Socià ©tà © Gà ©nà ©rale of $7.2 billion. Check out  further I.I.I. info on financial  and market  conditions for insurers.

Bermuda Influence

We have commented before on the key role insurance plays in the U.S. economy. Now, a study from the Association of Bermuda Insurers and Reinsurers (ABIR) highlights the critical role Bermuda insurers and reinsurers play in the U.S. economy. Key facts include that Bermuda firms: employ 9,600 Americans directly in the U.S. and indirectly generate an additional 95,045 jobs; paid $17 billion in property claims in 2005 for hurricane damage, representing 25 percent of total property damages covered; protect (via reinsurance) four out of 10 U.S. homes and businesses with property coverage; provide 40 percent of hurricane and earthquake reinsurance coverage in the U.S.; account for 26 percent of the total U.S. reinsurance market; generate as much as $96 billion of the gross output for the U.S. insurance market; and write 57 percent of the total U.S. crop insurance and reinsurance market. For further I.I.I. info on the insurance industry’s contribution to state, local and national economies, check out the updated edition of our online publication “A Firm Foundation†.  

Firm Foundation 2008

For those of you looking for tangible numbers telling the important story of how the insurance industry contributes to state, local and national economies, look no further. The I.I.I. has just released an updated edition of its online publication “A Firm Foundation†. The 2008 edition again shows the myriad ways in which insurance supports the economy, from offering employment and fueling the capital markets, to defraying the cost of catastrophes and providing financial security and income to individuals and businesses through the payment of claims. State-specific editions also highlight the industry’s role as a key player in a number of state economies, including California, Florida and Texas. The latest state edition focuses on New Jersey and can be accessed on the I.I.I. Web site at https://www.iii.org/static/statepdfs/newjersey.pdf.  

Auto Spend Down

Countrywide average expenditures  for auto insurance declined by 1.3 percent in 2005, the first drop since 1999, according to a September 2007 report from the National Association of Insurance Commissioners (NAIC). That’s good news for the many millions of drivers in the U.S. and underscores the point made by I.I.I. president Dr. Robert Hartwig in his recent commentary on the industry’s first-half 2007 results that falling insurance prices are lowering the cost of driving a car (as well as doing business and owning a home) for most Americans. In our annual auto insurance forecast the I.I.I. has highlighted the slowdown in auto insurance costs over the past several years. Fewer auto accidents due to better drivers and safer cars, crackdowns on fraud and advances in technology are some of the key reasons behind this trend. For state-by-state auto insurance cost comparisons, check out I.I.I.’s auto insurance facts & stats online.