Is the insurance sector next for a fall?
While we have heard much about the performance of the leading UK banks over the last few days there has been little mention of the problems facing insurance companies over the last few months and the challenges which lay ahead. Today's news that US insurance giant AIG is in trouble and had to carryout a fire sale $20 billion asset disposal to keep the group afloat has brought the sector to the attention of some traders.
You would expect that the insurance companies would be fairly well covered as they collect premiums, bulk them together and use the pool to cover any claims. However, for some time the insurance companies have been investing these premium pools into an array of different investment sectors where returns are very much under pressure at the moment. As investment portfolio values continue to feel the pressure there is a chance that we could see some of the UK majors reporting problems.
There are also other issues such as hurricane Ike in the US and the final bill for that which will be in the billions of dollars, not to mention flooding and other major insurance incidents in the UK. The insurance sector is feeling the pinch and is highly likely to come under the spotlight in the not too distant future.
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