Finance firms could catch global bugs

The integration of the EU financial services companies into global markets carries potential risks of 'financial contagion', the European Commission will warn on Friday (28 July) in its third annual report on the future development of the sector.

The Financial Integration Monitor 2006 analyses trends in market structures and integration, paying particular attention to the risks created by intensified integration of the sector into world markets in 1999- 2005.

The development has not only promoted better risk distribution, it has also created channels for financial contagion - the disproportionate transferral of risk across borders. EU reinsurance companies, which are net receivers of US risks, are deemed especially vulnerable.

Derek McGlynn, spokesperson for the European Insurance and Reinsurance Federation, said: "Reinsurance companies generally operate on a global level despite the risks, covering both the life and non-life side, including natural catastrophes."

He pointed out that the world's biggest reinsurance companies, including Germany's Munich Re, are European.

The report notes that the EU now represents 20-40% of worldwide financial activity. Growth has been particularly strong in the insurance and pension fund sector over the past years.

In the primary insurance sector, premiums tripled since 1992 to reach _925 billion at the end of last year and investments by insurance companies reached 6,000 bn euro.

The integration of the EU financial services companies into global markets carries potential risks of 'financial contagion', the European Commission will warn on Friday (28 July) in its third annual report on the future development of the sector.