In line with the suffering being witnessed by many companies, those insurers that represent the bulk of the individual annuity market are also seeing large drops in share prices. Aviva, which owns Norwich Union, and Prudential, have recently seen their share prices fall heavily.
There are fears that Britain’s insurance companies could be forced to call on shareholders to boost their finances, and this news has sent stock prices tumbling recently, despite assurances that the industry remained in good shape.
Insurers Aviva and Prudential suffered the biggest falls as shareholders panicked. Some investors said they were concerned that insurers faced the same collapse in confidence that undermined the credibility of the banks, and we know how bad that was.
Insurance companies must set aside spare capital (surplus) to cover guarantees attached to retirement annuities and with profits policies. The capital is largely invested in corporate bonds, which are considered a safe haven, but not when a sharp economic downturn forces corporates into insolvency.
