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Insurance Markets Best Practice

Best Practice

Internationally renowned finance leaders, experts and educators distil and summarize the most important aspects of finance best practice. Each Best Practice essay has an Executive Summary for quick reference, outlining the main points. The Making It Happen feature illustrates practical applications, and where relevant authors have provided illustrative case studies and definitions.

  • Climate Change and Insurance
    by Stephen Haddrill
    Starting from the fact that climate change is a reality that is happening now, and that we can see its impact across the world, what role does the insurance sector have in covering this? There is no doubt that climate change is of enormous importance to the insurance industry. The costs of flooding, wind damage, and abnormal heat are all huge, and climate change threatens to increase all those costs.Work done so far on climate change shows the...
  • Enterprise Risk Management and Solvency II
    by Andy Davies
    There is a great deal that the insurance sector has to come to terms with as it addresses the implications of Solvency II. There are broad general questions such as: What does it all mean? How will it be achieved and its requirements met? How much will it cost both from a capital and a monetary perspective? What resources are required? Then there is the related issue of how the International Financial Reporting Standards will fit with Solvency...
  • Insurance—Bruised, Not Crushed
    by Robert P. Hartwig
    There is no doubt that, compared with the banks and the investment banks, the insurance sector has come through the crash in relatively good order. The sector has not escaped entirely. AIG, the world’s biggest insurer, needed a US$85 billion bailout from the Federal Reserve to help the company unwind its credit default swap (CDS) positions “in an orderly manner,” without precipitating one of the biggest insolvencies ever in US insurance history....
  • Islamic Insurance Markets and the Structure of Takaful
    by Suzanne White
    Insurance plays a vital role in supporting both national and international economic development and growth. Islamic countries are no exception. The main issue for insurers in the Islamic world is that many Islamic scholars view conventional insurance as prohibited by Islam.Muslim scholars are not against the concept of risk mitigation, risk sharing, or risk management, including risk financing, per se. In fact, they support the compensation of...
  • Issues in Issuing Insurance-Linked Securities
    by Morton Lane
    The first insurance-linked security (ILS) was conceived in 1992, three months before Hurricane Andrew. However, perhaps to the chagrin of the potential issuer, AIG, the deal was not consummated. Had it been, the issuer would have collected for both Hurricane Andrew and the Northridge earthquake of 1994. The first executed ILS took place two years later, but it and some subsequent issues were relatively small in size. Two years after that, the...
  • Longevity, Reserves, and Annuities—A Difficult Circle to Square
    by Paul Belok
    According to best estimates from the actuarial profession, longevity is currently increasing at the rate of 12 minutes an hour. This may be good news for most of us, but it is not particularly good news for the sponsors and trustees of pension schemes, since it increases the cost of funding pensions very substantially. Moreover, the most unsettling thing about longevity creep is that no one knows how far the gains in the average length of the...
  • Solvency II—A New Regulatory Framework for the Insurance Sector
    by Paul Barrett
    In July 2007, the European Union (EU) introduced the Framework Directive for Solvency II, which aims to be a “modern, risk-based, supervisory framework for the regulation of European insurance and reinsurance companies.”The aim is for the directive to be enacted into law in member countries by October 2012. In the words of the UK’s Financial Services Authority (FSA), the directive “aims to establish a revised set of EU-wide capital requirements,...
  • The Insurance Sector: Plenty of Silver Lining to Be Found
    by Andrew Milligan
    If one looks at the devastation wrought on the global finance community, there is no doubt that the insurance sector has come out of this in very much better shape than the banks. There have been casualties—AIG in the United States, for example. However, AIG was a special case, being much more of a financial conglomerate than a “pure” insurance company.The reasons why the insurance sector has been less affected by the financial services...
  • The Origins and Current State of the Buyout Market for Pension Funds
    by Steven Haasz
    The buyout market for final salary pension or defined benefit (DB) schemes began more than a decade ago in the UK, with Legal & General as the sole provider. At the time, the focus was on distressed companies going into insolvency or administration. A buyout enabled the liquidator to separate off the company’s pension scheme, with its statutory obligations to pay benefits to members, from the company. Instead, the buyout provider would take over...

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