Where is the cash? Insurers sit on 2.4bn euros

Insurance companies have come to be among the main sources of funding for the economy, as they hold a large part of their reserves in banks and in government securities.
On a market where all companies are facing a major shortage of liquidity, and money is becoming increasingly expensive, insurers seem to be best placed: at the end of last year, the insurers’ overall reserves amounted to over 2.4 billion euros, with the money being mainly kept in banks, in the form of liquidity and government securities.
The business of insurance companies requires them to set up reserves when selling a policy, which is an advantage in a time of crisis, when players in other sectors have significant cash flow problems, with many of them unable to meet their commitments to business partners. Few sectors of the economy have such a level of liquidity at present.
“In theory, those companies that have set up the appropriate reserves are doing well, but one cannot change the destination of the reserves. The money earmarked for claim settlement will be used exclusively for the payment of claims, and by no means for daily operations,” says Radu Mustatea, general manager of Astra Asigurari, the fourth largest company on the Romanian market, with turnover worth around 178 million euros last year.
According to data from the Insurance Supervisory Commission, at the end of last year insurers had overall gross technical reserves worth over 6.27 billion RON (around 1.57 billion euros) for general insurance operations, 37% more than in 2007. For the life insurance operations, the value of these reserves amounted to around 3.35 billion RON (843 million euros), up 16% against 2007.
“The advantage of insurance companies is that they have this money available at any time in order to settle claims, but the reserves are not the companies’ money, we only manage it, it’s the insured clients’ money. I am not allowed to pay wages from this money, for instance,” says Theodor Alexandrescu, general manager of AIG Life, the second largest player on the life insurance market, with 78 million-euro turnover in 2008. Internationally, the American group AIG has faced major trouble, being rescued from collapse by the American state, which has provided over 170 billion dollars in overall aid to the company.
The bulk of the insurers’ reserves are kept in form of assets readily convertible into cash, such as bank deposits and government securities.