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The Actuary The magazine of the Institute & Faculty of Actuaries
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GIRO: Sub-prime impact on insurance may not be known for years

It may take up to three years to count the cost of the damage to the general insurance industry caused by the subprime crisis, according to Alex Marcuson, a speaker at the Actuarial Profession’s General Insurance (GIRO) Convention.

Mr Marcuson, chair of the GIRO Sub- Prime Working Party said that while the insurance industry had learnt many lessons from the liability trough of the turn of the century, the full extent of claim costs from the credit crunch, and wider recessionary effects would take two or three years to quantify. “Where there is economic loss, there are insurance claims, and the scale of losses here are huge and widespread.

The complex and contentious nature of this type of claim means that insurance information is thin on the ground and likely to prove slow to emerge — expect this to take some time.” He likened the significance of the fallout after sub-prime for insurers to the dot-com crisis. “When the dot-com bubble burst, the initial fear was about laddering claims but, in the end, these claims failed and the real damage was done by the extent of insured professional indemnity and directors’ and officers’ losses. We may well have large failures that repeat Enron and Worldcom but these may not prove to be the end of the story for many insurers, with the lower profile claims also taking longer to resolve.”

Mr Marcuson advised general insurers to carry out a careful review of their asset exposures as well as examining their liability positions, given the current turbulence in financial markets. He also spoke about the challenges recent events placed on an industry preparing for Solvency II, suggesting that some insurers might be considering recalibrating their internal capital models.