A speech by Jeremy Cooper, Deputy Chairman, ASIC, on Wednesday, 4 February 2009 at the Four Seasons Hotel, 199 George Street, Sydney
Thank you to the Insurance Council for providing us with this opportunity in early February to think about what the year ahead might bring. I don't know what this year will be like for the insurance industry, but it's going to be another great one for regulators!
Let's look at a few reasons why 2009 is likely to be a bit different:
- Governments around the world are forecast to raise about US$3 trillion in bond issues;
- UK official cash rates, at 1.5%, are at the lowest level since the Bank of England was established in 1694;
- The fall in market capitalisation of global equities markets from their peak on 31 October 2007 to the trough on 20 November 2008 is estimated as US$36.1 trillion - this was the equivalent in value to a bit over 34 weeks worth of global GDP at market exchange rates;
- Citi is now worth less than one-ninth of the value of the Industrial and Commercial Bank of China;
- The ratio of US public debt and private debt to GDP reached 358% in the third quarter of 2008, the highest in US history. The previous peak of 300% was reached in 1933. Nearly all of this debt is private, peaking at 294% of GDP in 2007;
- AAA-rated General Electric's stock is trading at about US$12.00;
- Economists around the world are working on a credible model for 'charging' negative interest rates to give more horsepower to monetary policy that has hit the 0% interest barrier; and
- The only event that comes close to the cost of the current financial crisis is World War II with the inflation-adjusted cost borne by the United States coming to US3.6 trillion in today's dollars. Bloomberg calculates that the US taxpayer is on the hook for a total of US$7.76 trillion of liabilities, which equates to US$24,000 for every man, woman and child in the country.
We've just welcomed in the Chinese year of the Ox, which seems very appropriate for 2009 – apparently the ox represents calmness, hard work and risk aversion (contrast to 2008 which was the year of the Rat – charming, cunning, selfish and greedy).
Today I would like to give you a flavour of some of the issues we have been considering at ASIC that involve the insurance industry and a few other bits and pieces as well.