With interest rates low and government bonds even lower, financial times have been tough for insurers and reinsurers alike. Intelligent Insurer asked five chief financial officers from some of the biggest companies in the industry about the challenges they’re facing.
The European Central Bank (ECB) has cut interest rates to 0 percent in an effort to encourage faster economic growth. In this kind of environment what can CFOs do to get the most out of investment returns for their companies?
The options to respond to the artificially low yields are limited. As a reinsurer, we adopt a sophisticated and rigorous approach to asset/liability management. We match currencies and maturities and we maintain a clearly defined liquidity level. Any desperate effort to increase yield would either be associated with a substantial increase in capital market risk or a violation of such principles. Both actions would increase our capital needs and have as dilutive an effect on the return on equity as the decrease in yields itself might have. This is, from my point of view, the reason nobody in the industry supports the current ECB strategy—even more so given that the additional cheap money does not seem to reach the real economy.
Insurance, Reinsurance, SCOR, Zurich, Munich Re, Hannover Re, Swiss Re, Solvency II