Wednesday, February 18, 2009

Horizontal lines and P&C insurers

...all insurance companies, watch out. With nationalization (via either PPP or other hybrid structure of governmental ownership) being discussed and the FED in slow-motion rate crash mode, a flattening yield curve in the next 4 years will be a reality.

The horizontals will cause massive damage to insurance obligations on the asset/liability management side. The combined ratio will be key...a saving grace here is that jury awards and claim payments on the P&C side tend to decrease in recession at a faster rate than deflation.

Hopefully, the insurance industry can see clearly their prognosis and lobby state regulators to lessen capital requirements (less treasuries, more risk assets that with favorable yields) The difficulty lies in the macro issues and governmental action.

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