The State of Europe
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10 May 2012Nicolas Michellod
I have frequently provided my personal view in this forum about the economic situation insurance companies have been facing since the emergence of the financial crisis back in the end of 2007. I published a post in November last year titled "Time is passing, uncertainty remains", in which I exposed my view on 3 important lessons that manifestly are proving to become reality as time passes: nations are here to stay, democracy always wins, and we cannot solve a credit problem with more credit. But today I would like to get back to an interesting figure published yesterday demonstrating that the financial industry in Europe is in a deep transformation phase that could take more years before the industry gets back to a better shape. This figure is the recent estimation of the jobs lost in the City of London published by the Centre for Economics and Business Research (CEBR), who said that City roles were down by almost 100,000 since the recession so it means we are talking about one-in-three City jobs axed since recession (more from The Telegraph). This impressive number is among others the consequence of a fierce competition that is currently happening between the main international financial cities. On the UK life insurance side, we have seen big changes too as shown in the following chart, demonstrating that the life market has gone through difficult time over the past five years: In France, the growing uncertainty surrounding financial markets has had an impact recently on how life insurance is perceived within the French population, explaining why life and pension product withdrawal (buyback of insurance policies) increased in 2011. Without saying that insurance ROEs have dropped across the board in comparison to the pre-crisis times penalizing the main bancassurance groups in 2011: In summary, uncertainty remains and getting back to the three key lessons explained in November 2011, I think the near future will remain tough for financial institutions and insurers. Indeed, the recent presidential elections in France and the parlamentary elections in Greece have demonstrated that: 1) There is a gap between what the European Union institutions think about the future of nations and what specific populations think is good for them. This is without saying that more integration between State members part of the EU forms part of the solution to the sovereign debt crisis but populations seem to be against this idea. 2) While austerity is needed, policy makers are now talking about growth programmes triggering confusion if not conflicts with the country producing the effort to keep the whole Euro-zone construction afloat (Germany) and without saying that austerity has not really been even tried as it is brilliantly demonstrated by Veronique de Rugy: In the light of what I observe day by day I can only repeat what I have written last year. I think that we have reached a point where the magnitude of the Euro-zone problem is too big for policy makers ability to find a successful plan. To me the time has come to plan the end of the Euro-currency under its current form and the more we wait the more difficult it will be. For insurers, there is more uncertainty ahead and I would encourage them to prepare contingency plans as Zurich Financial Services is doing.