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(March 24, 2008) Climate change is the greatest strategic threat, according to Ernst & amp; Young’s list of the top 10 insurance company risks.

Ernst & Young says changes in weather patterns caused by global climate change increase the underlying probability of insured loss from floods, windstorms and other natural phenomena.

As a result, insurers may be forced to scrutinize their insurability criteria. Climate change also affects pricing structures, reserving policies, solvency and corporate viability, as well as more long-term related consequences like increased health problems.

Ernst & Young places the baby boomer generation as the second greatest threat. Because current generations may not have sufficient funds for retirement, insurance companies are stepping into a role traditionally played by governments. That means insurers are facing intense pressure in cases of failure, intensified public scrutiny, and greater regulatory pressures.

The other risks that Ernst & Young identified were the rising cost of catastrophic events, investment in emerging markets, new regulatory developments, changes in technology, a lack of integration between technology and strategy, changes in securities markets, legal uncertainties and geopolitical or macroeconomic shocks.

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U.S. house sales surprise to the upside

(March 24, 2008) American existing home sales unexpectedly rose by 2.9% in February, setting an annualized level of 5.03 million units. According to RBC Economics, expectations had been for the level of sales activity to moderate slightly, to an annualized 4.86 million units, down from 4.89 million units in January.

The monthly increase reflected gains in both single family homes and condominiums/co-ops. RBC notes that the pickup in sales and moderation in inventories did not prevent housing prices from continuing to decline. On a year-over-year basis, the median sales price for existing homes dropped 8.2% compared to a 5.3% year-over-year decline in January.

RBC says the modest rise in activity still left the market down in the first quarter, by an annualized 3.2% relative to the fourth quarter of 2007. RBC is expecting another sizable double-digit decline in this area that will subtract close to a full percentage point from overall GDP growth in the first quarter.

RBC also says the continuation of recessionary conditions in the housing market is expected to be a factor that will keep the U.S. Federal Reserve cutting interest rates, which the bank expects to be lowered a further 75 basis points to a rate of 1.50% by mid-year.

BMO senior economist Sal Guatieri also released a report on the housing data. He too believes that while the data is encouraging, it does not signal an end to the U.S. housing crisis.

“Although lower prices are no doubt enticing bargain seekers, they are also scaring off potential buyers. A slower pace of decline and some easing in lending standards are likely needed before we can wave the all-clear flag on the housing/credit crisis front,” he wrote. “While the reduction in inventories is encouraging, one upside surprise in the housing market data isn’t proof of stabilization.”

(03/24/08)