Airmic 09: Insurer strength under the spotlight

As the strength of insurers comes under the spotlight, risk managers need to understand how to accurately assess their exposures in this area, the Airmic conference heard today.

When the global economic downturn started to bite during 2008, insurer counterparty risk rose the agenda and companies began paying more attention than ever before to the strength of their carriers.

As a result, risk managers need to be able to analyse their exposures in detail, if only to give the board reassurance about their insurance programme – and the relative strength and resilience of the sector.

Philippe Gouraud, head of the major accounts practice at AIG UK, said that there are several ways that risk managers and finance directors can do this. These centre on:

• Security – understanding the relative security of insurers’ business models, whose unique inverted cashflow cycle explains their greater resilience, compared with other parts of the economy.

• Regulation – considering the stringent regulatory requirements that govern the insurance industry.

• Analysis – carrying out detailed analysis of their specific exposure to their insurers, as well as any relevant mitigation measures.

Gouraud said: “The recent turmoil has forced companies to take a closer look at their insurers’ counterparty risks, and many have realised that the precise assessment of each exposure is in fact very complex due to the nature of insurance.

“However, one interesting point to note is that, despite the financial crisis, the general insurance industry has remained stable and shown its resilience. This is because companies tend to be well-capitalised and operate within a highly-regulated environment, which helps maintain market confidence and discipline.”