Hope, Straight Talk and Despair Amid the Ruins

Obama to the Rescue; Hartwig on the Banks; Davos Devotees Duck

Blame for instigating the current economic mess starts with the banks. Munich Re’s recent webinar gave Dr. Robert P. Hartwig, president of the Insurance Information Institute, a chance to point that out and to describe the essential differences between banks and insurers, which put the financial crisis in a much needed perspective.

Hartwig ticked off a number of points as proof that the insurance industry differs greatly from the banks. This means that insurers continue to: 1) Pay claims — whereas 25 banks have gone under; 2) Renew existing policies — as banks are reducing and eliminating lines of credit; 3) Write new policies — while banks are turning away people who want or need to borrow; 4) Develop new products — while banks are scaling back the products they offer.

He gave the following reasons: superior risk management model; low leverage; conservative investment philosophy; strong relationship between underwriting and risk bearing; tight regulation and greater transparency.

“Insurers always maintain a stake in the business they underwrite, keeping ‘skin in the game’ at all times,” Hartwig said, adding that “Insurers are more stringently regulated than banks, investment banks and hedge funds.”

Although he didn’t mention it, it’s fairly certain Hartwig would agree that whenever the world’s politicians get around to tackling the problem of preventing the next generation of “Masters of the Universe” from trashing the global economy with their innovative products, they could do worse than follow the trail already blazed by the insurance industry. (See IJ Web site: www.insurancejournal.com/news/international/2009/01/16/97036.htm).

He’s got plenty of help, so he’s not the ‘Lone Ranger’; even if the world’s press frequently treats him as if he were. Barack Obama’s inauguration as America’s 44th President was greeted with an outpouring of enthusiasm in the U.S. that was echoed throughout the world. He is a symbol of hope in the mold of Roosevelt, Churchill and Kennedy.

Will he succeed in fulfilling the hopes that his election has created? Probably not, as he has acknowledged. That’s not the point, however. Obama embodies the ideal of equality, a better life in a better world, which encouraged millions of Europeans to emigrate to America.

He’s not a scion of wealth and privilege, but an outsider of mixed race, who succeeded by dint of his intellect and his passion. For those reasons alone Europe and the world rejoiced at his election. The fact that he might actually be the right man for the almost impossible job he’s taken on is an added bonus. (See IJ Web site: www.insurancejournal.com/news/international/2009/01/20/97084.htm).

Then there’s the diminished Davos debate, from which many of those remaining masters of the universe are strangely absent. As reported by Reuters, the worst financial crisis since the Great Depression served to mute the enthusiasm of previous years as some 2,500 business and political leaders met in the Swiss Alps on Jan. 28 for the World Economic Forum.

Economist Stephen Roach gave a grim forecast for the global economic outlook, saying growth worldwide in 2009 was only likely to be about 2.5 percent — what the Morgan Stanley Asia chairman and longtime Davos attendee — termed a “near recession.”

Underscoring the sober mood, some of the glitz has been scaled back and previous celebrity guests such as Angelina Jolie, Sharon Stone and Bono are not attending.