Impact Of Financial Crisis Poses Greatest Threat To Insurance Industry - Ernst & Young Report Highlights Top 10 Risks For Insurers

InsuranceBroadcasting.Com

Thursday, 06/25/09
Impact Of Financial Crisis Poses Greatest Threat To Insurance Industry - Ernst & Young Report Highlights Top 10 Risks For Insurers

NEW YORK, 23 JUNE 2009 - The impact of the financial crisis is the most significant risk facing the insurance industry, according to a new report by Ernst & Young. In the Second annual business risk report - insurance 2009, model risk and regulatory intervention rank second and third among the top ten risks.

'As a result of the current economic conditions, there have been significant changes in the risks since the release of our 2008 report,' says Peter R. Porrino, Global Director of Insurance in Ernst & Young's Global Insurance Center. 'As insurance companies continue to navigate their way through this downturn, they should be focusing on changing their approach to risk management, regulatory analysis and the communication of risk information.'

The report identifies the top 10 business risks faced by the industry as ranked by more than 100 leading sector analysts. The top ten risks this year are:

1. Financial market crisis: the crisis has severely battered the financial services industry. Even if systemic risk abates, the consequences have been so profound that they are likely to shape the industry for the next decade.

2. Model risk: the failure to recognize the shortcomings of models and to adequately capture the nature of risk have left some companies unprepared for the depth of recent financial events.

3. Regulatory intervention: organizations must prepare for"

4. Managing the non-life underwriting cycle: mismanaging the cycle is arguably the number one cause of insolvency in the non-life insurance industry and the number one contributor to losses in stakeholder value.

5. Geopolitical shocks: greater risk of geopolitical shocks is heightened by the economic slowdown, as falling incomes generate political pressures and collapsing tax revenues threaten governments' capacity to respond.

6. Demographic shifts in core markets: consumer focus on savings products increases the insurance industry's need to strategically manage capital risk, including exposure to equity markets.

7. Emerging markets: while proving to be an area of expansion for large diversified insurers, emerging markets are more susceptible to rapid and unexpected deterioration.

8. Channel distribution: even with current market conditions and an increasing focus on expense reduction, there are still significant opportunities and risks in investing in multi-distribution strategies.
9. Legal risks: unexpected changes in both the forms and sources of liability continue to be one of the greatest challenges facing non-life insurance companies.

10. Climate change and catastrophic events: extreme events are major strategic risks for the industry and have far-reaching implications for insurers paying the price for the escalating costs of rising catastrophic losses.

While much of the downside risk may have already occurred, the current market turbulence still poses an immediate threat. "In this environment, it is essential that insurance companies address product innovation, changing regulation, investment strategies and capital requirements to help retain earning power and maintain agency ratings. This will help to serve as a starting point for discussions among leadership so that their near- and long-term business strategies take these issues into account," Peter Porrino concludes. "While instability still prevails, opportunities abound for those companies that are able to rebuild and strengthen their businesses."

About Ernst & Young's Global Insurance Center
Insurers must increasingly address more complex and converging regulatory issues that challenge their risk management approaches, operations and financial reporting practices. Ernst & Young's Global Insurance Center brings together a worldwide team of professionals to help you achieve your potential - a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
For more information, please visit http://www.ey.com/ <http://www.ey.com/> .
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

See Post At Insurance Broadcasting: http://www.insurancebroadcasting.com/insurance-news-062509-1.htm

Read Full Report At E&Y: http://www.ey.com/Publication/vwLUAssets/Second_annual_business_risk_report/$FILE/Industry_Insurance_Second_annual_business_risk_report_2009.pdf

***********************************************************************
This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.