Tom Broughton, editor

The message from the Bank of England is loud and clear. There is a real threat that the credit contagion may spread across the financial system and infect insurers.

Volatile shares reflect the sense of chronic uncertainty. As I write, Aviva’s share price has rallied (see right) after plunging to 245.25p on Monday – almost half its value on 14 October. Andrew Moss, the insurer’s chief executive, this week tried to reassure the market as he unveiled third-quarter results. Moss appeared bullish yet realistic. “Investors and customers can be confident our disclosures provide a full picture of Aviva’s financial position,” he said, before concluding that the group would be positioned well for growth only “once a more stable economic climate returns”.

And therein lies the clue to this predicament for insurers. It is becoming increasingly difficult to get a handle on their risk exposure and whether they are expected to report it. Analysts point to unknown exposures in carriers, such as sensitivity to corporate defaults and access to capital. But nobody has yet carried out the forensic analysis needed to find out where the bodies lie.

On the face of it, you would expect insurers to be confident.

They have low leverage levels, much longer-term liabilities than banks or hedge funds and a greater ability to access surplus capital. But who is to say how an insurer’s position will change if the turmoil intensifies? And what impact will it have on claims payouts? After all, it is understood that AIG alone provides up to 70% of directors’ and officers’ cover for the FTSE 100 companies.

The financial system depends on the kind of confidence and stability that the Bank of England cannot currently provide. At present, the Bank can only talk in broad generalities. So, it lumps in insurance with the hedge funds and emerging market economies as “areas of potential concern”. The picture being painted is that

if insurance companies are further downgraded by ratings agencies, their investment counterparts may use it as a bargaining chip to turn the screw on margins and force insurers to access additional capital quickly. And that’s without considering the backlash from corporate clients. It just makes you wonder how easy it is to talk yourself into a crisis, if insurance has not already been sucked into it.