Senin, 08 Desember 2008

Financial crisis will wipe out some insurance companies, predicts E&Y

Several insurance firms will fall victim to the global financial crisis, Robert Stein, global director of actuarial services for Ernst & Young, predicted today.

The industry has so far fared well in comparison to other sections of financial services because of limited exposure to the subprime mortgage meltdown and effective risk management strategies.

However, with many specialists suggesting there will be no end to difficult economic conditions in the near future, the insurance industry will not escape untouched.

Stein says there will be a need for consolidation within the industry, and warns that some smaller companies will not make it through the financial turmoil.

"Weaker companies in the insurance industry will not survive and we will see increased consolidation," Stein said, speaking on an Ernst & Young webcast titled Credit crisis and the insurance industry.

"There are issues on the banking side, of course, as to whether the rise of mega institutions is always a good thing but it's quite clear we will see the big getting bigger and with that will come an increase in complexity and risk profile. That may, perhaps, be undesired but it's part of the process of getting bigger."

But while some companies may be unable to weather the toughest economic conditions in decades, David Schieldrop, managing director at Barclays Capital, believes the situation presents "unprecedented" opportunity for some.

American International Group (AIG) plans to sell many of its subsidiaries as it looks to streamline operations. And with other companies also in distress, any firm with lots of capital could find themselves in a position to acquire a business they would not have been able to in the past – and at a knock-down price.

"This is a once-in-a-generation opportunity to acquire businesses," he said on the webcast. "The obvious example is clearly AIG as Ed Liddy has announced plans to sell a significant number of their business. There are companies there with significant market share. We really are seeing an unprecedented number of properties coming to market at a time when valuations are under severe stress. This makes for a very interesting situation.

"There is a chance for people to acquire some of the largest franchises in the industry."

Source : here

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