AM Best Information Services

JUNE 24, 2014 09:37 AM (EDT)

A.M. Best Special Report: The 'Grey Swans': Top 10 Threats to European Insurers' Financial Strength

Stefan Holzberger
Managing Director, Analytics
+(44) 20 7397 0277

Dr. Edem Kuenyehia
Associate Director, Market Development
and Communications, A.M. Best - EMEA
+(44) 20 7397 0280

Jim Peavy
Assistant Vice President, Public Relations
+(1) 908 439 2200, ext. 5644


LONDON - JUNE 24, 2014 09:37 AM (EDT)
European insurers have enjoyed a recent period of relative economic stability. Many have been able to rebuild their capital positions following the financial crisis despite ongoing challenges, such as a protracted period of low interest rates and a more complex and stringent regulatory environment. Against this backdrop, there remain many structural weaknesses in the European financial system, as policymakers search for solutions to solve macroeconomic imbalances in the Eurozone region. A.M. Best's special report, titled, "The 'Grey Swans': Top 10 Threats to European Insurers' Financial Strength," explores the threats or events that can have a devastating effect on the financial strength of an insurer or the market within which it operates.

The top 10 threats that A.M. Best has identified can evenly be spread into two categories: those that deliver a "knock-out punch," such as a mega-catastrophe, extreme financial market downturn, or a modeling error that leads to a rapid spiral toward impairment, versus those that lead to a "slow and painful death," such as higher regulatory costs and protectionist practices, or emerging underwriting risks in areas such as cyber terrorism, food security or climate change.

Stefan Holzberger, Managing Director, Analytics, commented: "It is important that insurance companies devote sufficient time and resources toward managing the low probability, high severity risks to their businesses. These are the grey swan events, the known unknowns, as compared with the black swan events, the unknown unknowns that are virtually impossible to manage or hedge against. A.M. Best expects securely rated companies to incorporate the potential for grey swan events into their risk management frameworks. These companies' risk appetites, risk management capabilities and balance sheet strength should be sufficient to withstand the severe stress scenarios discussed in this report."

This report is a high-level summary of a presentation delivered at the International Insurance Society's 2014 Seminar in London. A.M. Best expects to publish an additional report later this year reflecting on how the grey swan risks outlined are captured in the rating analysis.

To access a complimentary copy of this special report, please click here.

A.M. Best Europe - Rating Services Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.