The Strongest Insurance Companies Will Come Out Ahead
In a sign that the credit crisis maybe nearing an end, the financial services sector including the insurance industry is beginning to heat up with merger and buyout activity. The insurance industry has faired better than their counterparts in the commercial banking and securities brokerage sectors, amidst the fallout of the sub prime collapse.
Insurance companies have taken their fair share of lumps and losses will eventually eclipse what was paid out for Hurricane Katrina. For the most part it was in isolated pockets like bond insurance that chose to deal directly with mortgage backed securities. However, the underlying nature of much of the industry has let it avoid most of the shortsightedness of the rest of the finance world.
Due to the type of financial products insurance companies sell, they must be much more risk adverse, which has served them well in a faltering economy. The must also maintain much stronger capital positions in order to meet claims obligations, thus they have large cash reserves on hand and haven’t been affected as much by the credit crunch.
A growing concern for the future is the drop in investment income that makes up the bulk of the profits for the industry. Though with stocks prices depressed, companies that have weathered this storm the best are out looking for deals.
As is with life, the strong will survive while the weak will get gobbled up by their larger brethren.
