Institutions and insurers hit globally

 

The latest fall in world stock markets will affect financial institutions and insurers globally. Individuals with investment policies are also facing another weak performance this year, writes Siobhan Creaton.

The latest fall in world stock markets will affect financial institutions and insurers globally. Individuals with investment policies are also facing another weak performance this year.

Analysts are not immediately preparing to downgrade the earnings forecasts for companies such as AIB, Bank of Ireland and Irish Life & Permanent, but the meltdown in world stock markets is expected to depress earnings.

Bank of Ireland produced relatively flat results last month with profits up 3.4 per cent to €1.12 billion in the 12 months to the end of March. It cited the impact of weak equity markets on its asset management business as one of the key factors depressing profit growth.

Mr Scott Rankin, financial analyst at Davy Stockbrokers, said it was too early in the bank's current financial year to make any adjustment to forecasts, which are more likely to be re-examined in September.

This exposure is relatively small but the lower valuation of its asset management may also hit its earnings potential.

The bank has made a bigger general provision in its accounts to allow for any deterioration in its commercial lending. It does have the capacity to dip into these reserves.

Irish Life & Permanent has the greatest exposure to declining equity markets, earning 70 per cent of its profits from fees and investment gains on its clients' funds.

To date, the company has reported little sign of customers seeking to switch out of their equity investments, according to head of retail investment Mr Dermot O'Brien.

He said policyholders were facing a second successive year of investment losses but the group remained positive about the outlook for world stock markets.

Mr Grant Barrons of Hibernian also confirmed that investors would be disappointed with the performance of equity funds this year. Those with unit-linked investments would have been able to view the daily progress, which has mainly been downwards.

Holders of with-profits policies however will be taking a longer-term view and will net an average gain over the lifetime of those policies, which are typically 10 to 20 years.

There has been much speculation in Britain that insurers would be forced to sell equities and move their assets into cash and bonds to ensure they can meet payments on policies as they fall due.

Insurance companies that underwrite with-profits policies will come under most pressure in this regard.