Life Insurance Fact Check

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Germany was it in turn impacted by the crisis in European Union?

Indeed, the Zew barometer that measures the confidence of German financial circles in the country's economic outlook for the next six months, has again declined in August, for the sixth time in a row. The barometer has reached Zew - 37.6 points in August, after posting - 15.1 points in July.

The fact is all the more striking that the index had not fallen as sharply since October 2008, during which he had lost 21.9 points from the previous month, hit hard by the impact of the bankruptcy of Lehman Brothers. Also note that the current drop is greater than analysts' estimates, which had forecast an index standing at -26 points.

The indicator is now suffering the backlash of concerns about German growth, which slowed sharply in the second quarter. Last week, the Federal Statistical Office (Destatis) and has the resolve to announce that German gross domestic product (GDP) was only marginally increased by 0.1% over the first quarter. If investors hold a positive view of course the current economic situation in Germany, but it is much worse than the previous month.

It is true that if Germany is often seen as a champion of exports, foreign trade made a negative contribution to GDP in Germany last spring, as imports exceeded exports. "Private consumption and investment in construction also slowed the German economy in the second quarter," had also then said the Statistical Office. According to a survey released recently, the Germans would doubt increasing the capacity of Chancellor Angela Merkel to solve the financial crisis.

They are in fact 55% have had "little confidence" and 20% "no confidence" in the conservative-liberal coalition government out of the euro-zone turbulence that wave now. Main objections put forward by the survey: "the Germans aspire to clear positions on the part of leaders and now it is not the case," said Richard Hilmer, director of Infratest Dimap. In other words, the German citizens expect a clear plan, and their demands are not met at present.

The question is whether the second quarter sounds sort of the end of the German economic miracle, and if Germany could in turn fall into the throes of recession.

Online Banking Part.II

The only entities that have managed to sustain their existence are those that are backed by a bank, maintaining an independent identity. This allowed them to diversify their services, taking advantage of operational know-how and organization of their parent and thus offer very attractive prices. Boursorama is a convincing example of this model. Since its merger with Society General, Boursorama is no longer confined to the business broker but has become a real bank.

However, if the online bank has no place as an organization independent financial, recent operations have shown that online banking is now essential to any actor with a network. New entrants in the banking landscape have understood. Insurers having embarked on the adventure of assurfinance began with an offer to acquire or develop online banking in addition to the existing branch network.

The acquisition of online banks by banks should not be seen as a way to computerize the customer relationship. Indeed, banks are seeking to boost their network by opening branches. The agency is the best way to attract customers, offering Internet users the ability to simplify the management of operations.

However some players have managed to build a profitable business model around online banking service. This model is based on tactical development articulated in two phases:

(I) a startup focused on specialized and profitable activities. For example, the tactic is to capture customer deposits and generate commissions on high value added activities (securities, life insurance ...) and for which the customer is willing to pay.

(Ii) enlargement to daily banking activities (current accounts, credit card) which are less profitable because of investments in infrastructure require significant yield little and are subject to very strong competition.

Online Banking Part.I

The acquisition of Egg by Citigroup shall deliver to the agenda the question of the model of online banks. Founded in 1998 by Prudential, Egg has always been deficient - the French branch was sold in 2004 to Auchan in the development of banking activities and never managed to achieve the objectives in terms of customers. This is the situation common to most of the independent online banks. However, their creation in the late 1990s, online banks seemed to have a promising future thanks to the Internet phenomenon. How to explain such a setback?


At the beginning, the online banks were intended to attract a large clientele (Egg counted on a portfolio of 1 million customers in 2003, five years after its creation) by proposing a new banking model: an account management possible at any time and from any Internet-connected computer, with an offer "discount". Using the Internet as the only interface between the bank and the customer had to allow significant savings, both in terms of personnel but also capital assets. Thus, online banks offer rates were very aggressive on a range of services equivalent to that of a traditional bank. However, they failed to offer prices low enough to stand out, to forget the absence of physical relationship between the customer and the banker, and manage to capture some of the customers used to a classical model.

Weakened by the explosion of the Internet bubble in 2000, online banks could not withstand the intensity of competition in the banking sector, especially as traditional banks, although behind the banks line, developed or acquired equivalent services. The interest of a "pure player" of online banking has therefore been questioned since it was possible to combine customer relationship in a network, and maximum flexibility via the Internet.

Liquidity Crisis And Stress Testing

Liquidity risk cannot be treated satisfactorily by the VAR because it ignores the risk exposure of a portfolio during the process of its liquidation. A liquidity crisis is usually an extreme event, so it requires tools Stress testing more appropriate than the VaR.

To fight against liquidity crises, the scenarios of crisis of a financial institution must include all the fragility of its balance sheet, namely the possible mismatch between investments in illiquid assets and funding sources precarious liabilities. A Stress Test relevant to a financial institution would be important to consider the consequences of a simultaneous withdrawal of its market counterparties. This is the way in which JP Morgan is committed after the near-collapse of LTCM in 1998. JP Morgan has developed the "dealer exit stress tests" to estimate the risk of sudden drying up of market liquidity due to one or more of their counterparties. This kind of stress tests and allowed to become aware of the dangers of the high concentration of certain financial markets.

One of the limitations of VaR as originally calculated was based on an assumption of "normality" of events. Or rare events are more important in magnitude than the law says normal. The work was therefore directed towards the use of distributions from "fat tails". Stress Testing procedure has the advantage of circumventing this difficulty by specifying the desired magnitude of the event, regardless of its probability of occurrence. Therefore it is considered an extension of the VaR.

Although complementary, these two methods have significant differences, however, since they are far from operating in the same period. Indeed, while the VaR is a tool for highly automated daily monitoring, Stress Testing requires the intervention of a number of players and often requires a significant delay construction and analysis. Thus, if the answer to a VaR limit is exceeded is simple (just cut positions), the response to overexposure through a liquidity stress analysis is more complex (installation program or refinancing guarantees, etc.)..
Finally, unlike the VaR with the automatic calculation can facilitate the adoption of the outcome, the results of stress testing because they are developed from subjective elements, require a real effort to communicate and explain with decision-making bodies.