Insurance Governance Leadership Network, April 2014
“The real problem I see is the diametrically opposed and mutually exclusive economic risks. On the one hand, you could see deficits, inflation, government defaults. On the other hand, you could see deflation. How can a board prepare for all of that?”
For many months, adverse macroeconomic trends have been at the top of the industry’s risk agenda. Within the Insurance Governance Leadership Network (IGLN), participants have focused attention on the persistent low-interest-rate environment, discussing it at length during IGLN’s 2013 summit. But other macroeconomic concerns have also drawn their attention: continued macroeconomic uncertainty, certain recent central bank actions, sovereign debt challenges, and slow growth, all of which pose major threats to profitability. A number of possible future scenarios are mutually exclusive, which puts insurers in the challenging position of having to prepare for opposing contingencies. For their part, supervisors and regulators worry that current conditions may threaten global financial stability.
On March 4 and 20, 2014, IGLN participants, including supervisors, non-executive directors and executives, and subject matter experts, gathered in London and New York, respectively, to discuss these issues. They shared thoughts on probable economic futures and the impact of various scenarios on long-term strategy and growth opportunities. For a list of participants, see the Appendix, on page 7.
This ViewPoints captures the essence of those conversations, in which five key themes emerged:
Central bank action is likely to increase volatility
Emerging markets present significant challenges and demand novel business approaches
The interaction between economic conditions and market structure in local markets worries insurers
Infrastructure investment is a promising asset class, but has its own challenges and risks
Insurers view deflation as a low-probability future scenario