After rising interest rates and a decline in U.S. housing prices drove increased defaults among subprime borrowers, investors rapidly lost their appetite for securities based on subprime mortgages. Given the integration of capital markets, the impacts quickly ricocheted around the world, affecting banks, securities firms, and hedge funds in all the developed economies.

Although the insurance industry has enjoyed strong business conditions over the last few years, the worsening economic outlook will likely pose considerable challenges in the year ahead. These challenges will be especially pronounced in the property and casualty segment, where growing pricing pressure as the market softens will drive a need for cost-cutting and greater efficiency.

What began as a problem in the market for securitized U.S. subprime mortgages rapidly spread to other markets and ricocheted around the world as investment dried up for a wide range of instruments.

The industry has been responding to a welter of new legislative and regulatory requirements over the last several years, and the credit crisis has already led to more proposals for additional regulations. Adopting more efficient approaches to managing these multiple requirements will be important to remain competitive. Securities firms face a more unsettled industry and economic environment than they have in a number of years.