With Global Markets Weak, Regulators Will Share Data On Firms Insuring Insurers
By Charles Fleming, 10/03/2002, The Wall Street Journal, Page A10

PARIS -- Worried about the weakened state of the global insurance industry, financial watchdogs on both sides of the Atlantic are stepping up surveillance of the sector.

The 30 member countries of the Organization for Economic Cooperation and Development have reached an agreement to establish an information exchange on reinsurance companies within their jurisdictions, increasing oversight of a sector that acts as a linchpin within the international financial system -- but that has been loosely controlled.

"There is a conjunction of factors which have weakened the financial situation of the reinsurance companies, and we are putting them under greater scrutiny," said Cecile Vignial, who handles insurance issues for the OECD, which is due to announce the agreement this week.

Reinsurance companies, which underwrite many of the risks taken on by the life and property-casualty insurers, are effectively insurers of last resort and therefore are crucial to the smooth operation of the world's insurance market. Many insurers, both in North America and in Europe, have been shaken in the past year because they stand on the front lines of financial exposure to losses from terrorist attacks, natural catastrophes and escalating legal-liability disputes. The deep slump in global stock markets, and a number of blowouts on the corporate bond market, have compounded their problems. European insurers, which tend to hold a greater proportion of their reserves in stock than their U.S. counterparts do, have been severely hit as investors have dumped shares over the past year.

Reinsurers haven't shown signs of collapsing under the current pressure, but last month credit-rating agency Moody's Investors Services deprived industry giant Munich Re of its cherished triple-A rating, saying that its capital level had declined significantly. In a separate report, also issued last month, Moody's warned that it had a "negative long-term outlook" for the reinsurance industry overall.

Some $98 billion of reinsurance premiums were written last year, of which German reinsurance companies accounted for 29%, U.S. companies 27%, and Swiss and British-based firms each 9%, according to data from credit rater Standard & Poor's.

Under the terms of the OECD's planned reinsurance information exchange, the governments of the organization's member countries are to share all their available information about reinsurers active in their markets. The aim is to track information that would help identify fraud, insolvency and the like.

In a separate move that also reflected official concern about the condition of some insurance companies, the French government blocked a planned acquisition of a small life insurance unit by the Zurich insurer Swiss Life. A spokesman for the French Finance Ministry confirmed late Tuesday that it had blocked the sale of Belgian-Dutch financial-services company Fortis NV's French insurance unit to Swiss Life because the national insurance regulator believed such an acquisition "did not take into account the state of the financial market."

In a joint statement, Fortis and Swiss Life said the decision "does not in any way reflect upon the value of these companies, or the quality of their operations."


  1. Why, according to you, have European insurers invested more in equities than American investors?  Try to explain it as a rational response, as far as possible.
  2. Would you recommend to European insurers that they sell equities and switch to bonds?  Why?
  3. Given the current situation, speculate about the reasons for Fortis wanting to sell the French unit, and for Swiss Life wanting to buy it.
  4. Why is it important to have international cooperation to monitor the re-insurance companies?
  5. Is it sufficient to monitor the re-insurance companies, or is it necessary to monitor insurance companies, as well?  Explain why, or why not.
  6. What would happen if re-insurers refused to take on risk from insurance companies?
  7. Do you think that there should be government intervention in the re-insurance market?