On November 26th 2019, Reacfin organized a seasonal breakfast to discuss the challenges in managing insurance companies in periods of recession.
To start our discussions, Mr. Frederic Vangheluwe, the former head of Global Markets activity at BNP Paribas Fortis and former CRO of Merchant Bank at Fortis, reminded us the challenges faced by financial institutions during the Great Recession of 2008-2010 and the key lessons learned.
Our consultants Pr. François Ducuroir, Samuel Mahy, Julien Antunes Mendes and Dr. Adrien Lebègue then highlighted the currently prevailing signs of recession threats and discussed the typical impact such difficult economic conditions could have on Life, Non-Life and Investment/ALM businesses of regulated insurance companies in Europe.
To illustrate our point we presented a detailed case study, produced using Reacfin’s Business Projection tools. We highlighted the effects of a relatively mild crisis (compared to that of 2008-2010) on the company’s profitability and book value under IFRS, on its solvency position considering capital requirements set by Solvency II and on its liquidity position considering, among others, cash-collateral requirements under EMIR for duration-hedging swaps.
As our case study hints that traditional remediation actions, such as cost-cutting efforts or suspensions of dividends and profit-sharing might, at the best, be insufficient (and probably even counterproductive), we discussed other solutions insurance companies should envisage. In particular, we pointed out management actions insurers could start now to ensure they are better prepared to face recessions in the future.
Interested readers will find the slides of the presentation here: