Ireland’s Re/Insurers Not Seriously Affected by Financial Crisis

Even though Ireland’s financial crisis continues to make headlines, it’s not by any means a national meltdown, and it doesn’t appear to pose a threat to any of the re/insurance companies and brokers, who have substantial operations in the country.

“The issue is localized within the banking sector,” said Sarah Goddard, CEO of the Dublin International Insurance Management Association (DIMA). “There really aren’t any systemic problems, apart from the property sector.”

Essentially Irish banks made too many loans on both commercial and residential property over the last 10 years or so, when the Irish economy was rapidly expanding. When the bubble burst they were left with huge numbers of non-performing loans, and turned to the government for the funds necessary to keep them afloat. It established the National Asset Management Agency (NAMA), to take up the bad loans – at a substantial discount. But the amounts required keep rising, and have engendered the current concerns over Ireland’s national debt.

For reasons that may have more to do with potential problems in Greece, Portugal, Spain and Italy, the European Union has been trying to convince the Irish government to accept a bailout, which it says it doesn’t need. EU officials are scheduled to meet with their Irish counterparts on Thursday to discuss the situation.

However, as Goddard said in an interview last April, “we are very much holding up.” DIMA now has 69 members, and, she said, “I haven’t heard of any of them wanting to move. In fact there are both European and global companies who are still looking at moving [operations] to Ireland.”

Apart from the banking sector’s problems, which Goddard explained, “are local and less important internationally,” the underlying economy is sound. It’s become a major insurance hub, and is likely to remain so. The strength of the market is based on “local expertise and knowledge,” she said. The government has also reiterated its “commitment to the twelve and half percent corporate tax rate.”

As an EU and Euro zone membe,r Ireland offers advantages to companies wanting to do business there. It also has a highly educated population, who, Goddard said, are more and more focused on “actuarial studies, finance and mathematics,” increasingly sought after expertise for the insurance industry.

The current situation is serious and shouldn’t be underestimated, but Goddard doesn’t foresee a “catastrophic meltdown.” The main concern is uncertainty, which neither financial markets nor businesses in general can ignore. However, “we should be careful not to magnify the uncertainty,” she added.

From previous experience, notably the UK in the early 1990’s, it seems likely that property values do eventually recover, but it does take time for the situation to “become manageable” and for “tangible assets to regain their value.”

In the meantime Ireland’s insurance industry looks like it is well able to weather the storm, and, as a result, it will continue to play a leading role in the recovery and in the future growth of the Irish economy.

Topics Carriers Europe Reinsurance