November 10th, 2008

Book Value Update: Earnings Announcement Impact

Posted at 1:00 AM ET

The erosion of balance sheets continues, as the effects of a global financial catastrophe spread across financial markets. With many (re)insurers beginning to report their third quarter results, weighted average book values for the sector have resumed their slide. The banking industry has edged lower, as well.

As measured by the S&P 500 Insurance Index, carriers have lost 15 percent in weighted average book value since the beginning of the year. This represents a significant change from the 9 percent level at which the index stood for the past several weeks. European carrier results are in line with the global trend. The weighted average book value of the Dow Jones Euro Stoxx Insurance Index is also off approximately 15 percent this year.

The availability of third quarter results is responsible, at least in part, for the acceleration of weighted average book value loss for the industry. Movements in the indices imply announced results are clarifying the effects of asset losses.

Meanwhile, the banking sector has declined for another week. The weighted average book value for the S&P 500 Banks Index is down 35 percent this year, indicating that the financial catastrophe remains more problematic for banks than (re)insurers.

The damage to banks’ balance sheets reinforces for (re)insurers the notion that fresh capital is likely to be constrained heading into the January 1, 2009 renewal.

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