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World markets crash casts shadow on European insurance cos.

By Batuk Gathani

BRUSSELS OCT. 1. The world stock markets have been sent into a tailspin as investors are recoiling from the grip prospects of a war in Iraq coupled with a barrage of bad economic news in major financial capitals. The European blue chip stocks have significantly tumbled and current losses on the year now near the 35 per cent mark. All these are highlighted by renewed fears for the global economy, depressing corporate profits and menacing prospects of a war in West Asia. Most accusing fingers are today being pointed at politicians and central bankers. The financial crises are further compounded by anaemic and depressing company profits. The European stocks fell by about 5 per cent on Monday. Then there are fears over Europe's battered insurance industry. As share prices have substantially fallen during September, there are worries that some of the best-known names in the financial sector could be on the brink of insolvency. Major insurance companies are shedding staff and more than 3,000 jobs are at risk in the industry and over 2,000 in the banking industry. The steep fall in stock market has forced prominent insurance companies to cut their bonuses and major companies have taken decision to reduce the number of financial products offered to the public. Company directors in several cases have been forced to take substantial salary and bonus cuts and perks are being trimmed.

The market fall has wiped out some of the insurance companies' surplus cash and companies are seen going back to the basics in search of cash.

The rights issues are seen as the trusted route to acquire new funds. As an analyst put it, "Bond markets have shut, the IPO market is dry, banks will not lend and hence companies have to ask shareholders for money." Major insurance companies' investment portfolios have been hurt by falling stock markets. Many insurance, blue chip and financial companies are struggling under a debt mountain and are opting for more right issues.

Many eyebrows were raised yesterday when Prudential, a major British insurance company, announced plans to cut some 850 jobs in Britain and open a new operation in Mumbai. The Prudential Company is seen following a precedent set by other major European and British companies heading towards India and Far East in search of cheap, skilled labour.

Monday's sell off started in Japan as investors reacted to a steep U.S. stock price fall on Friday. The third quarter, which ended on Monday, is rated as being worst since 1987 market collapse. According to analysts, the gloom in financial markets seems to be growing.

The "more than depressing" U.S. economic reports coupled with investors' anxiety about prospects of a war in Iraq triggered a major fall in stock markets. Although, the traditional resilience of the American consumer has so far been a key to keep global economy afloat, analysts today predict that the consumer may no longer be able to carry the load. With more corporate scandals in the offing, average investor confidence has been shaken and September has been a terrible month for world stock markets.

The year 2002 has been a bad year and according to analysts in major western markets — the U.S. Japan, Germany, France, Italy and Britain — the falls from the highs of first quarter to lows of the third quarter have now averaged about 30 to 35 per cent.

Technology and blue chip shares fed the boom of the 1990s and all was seen doing well till managements fiddled company accounts and prominent auditors let them get away with it.

The market expectations suddenly collapsed and the only silver lining is that the past 30 months can be seen as a well-desired correction for the over-inflated stock prices. The current debate is whether the end is in sight or the bear market can drag indefinitely.

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