Claims costs from the credit crunch and a wider recession could take between two and three years to be felt by insurers says actuary
The full impact of the sub-prime crisis on the general insurance industry may take up to three years to be fully felt, warned a leading actuary.
Speaking at the Actuarial Profession’s General Insurance (GIRO) Convention, Alex Marcuson said that while the insurance industry had learnt many lessons from the liability trough of the turn of the century, the full extent of claim costs from the credit crunch and wider recessionary effects would take two or three years to quantify.
Marcuson, chair of the GIRO sub-prime working party, said: “Where there is economic loss, there are insurance claims, and the scale of losses here are huge and widespread. The complex and contentious nature of this type of claim means that insurance information is thin on the ground and likely to prove slow to emerge - expect this to take some time."
He likened the significance of the fallout after sub-prime to the dot-com crisis.
"When the dot-com bubble burst, the initial fear was about laddering claims, but in the end, these claims failed and the real damage was done by the extent of insured professional indemnity and directors' and officers' losses. We may well have large failures that repeat Enron and Worldcom, but these may not prove to be the end of the story for many insurers, with the lower profile claims also taking longer to resolve."
He advised general insurers to carry out a careful review of their asset exposures as well as examining their liability positions, given the current turbulence in financial markets.
He also spoke about the challenges recent events placed on an industry preparing for Solvency II, suggesting that some insurers might be considering recalibrating their internal capital models.
He said: "When the insurance industry is looking to emulate the banking regulatory model and leading banks have just suffered a series of failures, impairments and forced sales, then there are some important lessons to learn. [Former US federal reserve bank chairman] Alan Greenspan said last week that the economic conditions we are experiencing are perhaps a once-in-a-century economic event; with Solvency II we're trying to create a one-in-200-year standard."
