Insurance survey 2009: Insurers take cover to avoid capital crunch
The demise of AIG has inflicted an identity crisis on the insurance industry. But insurers face exposure to distressed assets, accounting and valuation issues and a potential shortage of capital. Sounds familiar? Helen Avery reports on how insurers believe they will avoid the same fate as the banks.
MOST LEADING INSURERS say they have little in common with the failed financial institution that AIG became. They’re right. But leading insurance executives should be more concerned about differentiating the industry from a banking sector in crisis.
In February, UK hedge funds Lansdowne Partners, and Odey Asset Management went short UK insurers. Lansdowne took a short position in Prudential worth about £10.5 million ($15.2 million), a £26.2 million short in Aviva, and further short positions in Legal & General and Old Mutual. Odey Asset Management took a £7.1 million short position in Legal & General. Before the introduction of UK regulation that states that short sales of financial stocks must be disclosed, such behaviour would have gone unnoticed.
But in an environment where investors are scrutinizing every move by short-sellers to see where the next blow-up is going to come from, the strategies of Lansdowne and Odey have made people nervous. What do they know that we don’t? Lansdowne, for example, had spent three years betting on the demise of Northern Rock.