Dr. Cyril Roux:

Deputy Pearse Doherty is right to say that invest income plays a role in the economies of insurance companies and that the fact that it is lower today than it was means that the business model must be realigned. Where one can supplement one's premiums with investment income, one sets those premiums at a different level than when one cannot supplement them with investment income. That is an economic factor for insurance companies. They operate in a world in which, if they stick to prudent investment, Government bonds and highly-rated corporate bonds, they will have low investment returns. To pay for claims, expenses and commissions, they cannot rely nearly as much on investment income, so they need to increase premiums, which they do. When their investment returns increase again, they will be in a position to reduce premiums. That is not something on which they have much of a handle without chasing returns, as the Deputy mentioned, and opting for riskier assets. If one keeps everything stable except claims, commissions, legal fees and so on and one reduces investment income, one must raise premiums.

How much does investment income account for in the profit and loss account? Typically, the motor insurance line of business has two years of premiums on its balance sheet, which means that it will have two years of income to add to the premiums. If one has a 5% return, one has a 10% investment income in one's profit and loss account. If one loses that, one will have to raise premiums by 15%, for example, to compensate. That is not specific to motor insurance in this regard. The effect is even greater for longer lines of business. It is a liability. This situation is not specific to Ireland either, as it happens throughout the eurozone and other advanced economies.