What a difference a year makes. Investment performance is now the number one risk facing the insurance industry, according to the latest Centre for the Study of Financial Service (CSFI) Insurance Banana Skins survey, conducted in association with PriceWaterhouseCoopers.

The 2009 risk ranking, drawn from a survey of over 400 senior insurance executives, contrasts sharply with the previous survey published in 2008. Investment performance (1), equity markets (2), capital availability (3) and macro-economic trends (4) are now at the forefront of insurers’ concerns, above the previous year’s number one worry, ‘too much regulation’ (5).

Natural catastrophes, management quality and climate change now barely figure.

Of course insurers are operating in a different, more uncertain, environment: low investment returns, dried up capital sources and an economic slump all dominate.

It is a wonder non-life respondents sleep at night. The survey showed their top ten banana skins also include managing the pricing cycle, reinsurance security and risk management techniques.

‘Too much regulation’ slipped down the overall rankings to fifth place, but it remains a big issue. That’s because insurers fear a regulatory crackdown in the wake of the credit crunch. Insurance executives worry that their industry will be made to share the cost for what is essentially a banking crisis.

The survey doesn’t inspire confidence. Doubts over the quality of the insurance industry’s risk management and its exposure to complex risk instruments such as credit default swaps are sharply up on the previous survey. Only 4% of respondents thought that insurance companies are well prepared to handle such risks, compared with 21% last time.
But were they doubting their own or their competitors’ abilities?

Tags: Banana skins, Risk report

This entry was posted by Garry Booth on Monday, February 23rd, 2009 at 6:09 pm and is filed under Insurance Commentary.