Seven out of ten European life insurers (68%) polled in a Towers Watson survey have a positive outlook for their businesses in spite of ongoing market turbulence. Responses to Towers Watson’s European Actuarial Directors’ survey* also clearly recognise the scale of the challenges ahead, which include the rising cost of capital and the advent of Solvency II, with six out of ten life insurers (58%) viewing the next two to three years as extremely difficult.
Michael Murphy, Continental Europe Director of Towers Watson’s Risk Consulting and Software business, said: “A sharp rise in the cost of accessing capital has been driven by escalating scarcity and a greater focus on risk. Underperforming areas of business should be fixed or removed allowing the additional capital to be more effectively utilised to exploit strengths and deliver better results.”
Towers Watson expects the arrival of Solvency II will significantly change the attractiveness of certain asset types. More than half of the companies surveyed (56%) are already planning to invest in a wider, more diverse range of assets in order to take full advantage of the reduced regulatory investment constraints offered by Solvency II.
Laura Santori, Senior Director at Standard & Poors, said at Towers Watson’s European Life Actuarial Directors’ Forum in Rome**: “Financial markets remain defined by volatility in equity markets while the frequency and severity of catastrophes are rising sharply. Yet opportunities in this environment exist for the well-capitalised and Solvency II-savvy insurer. Some troubled bancassurance groups under pressure from Basel III are now spinning off their insurance subsidiaries. This will create opportunities for the cash rich insurers and those insurers proficient at exploiting excess capital to thrive under Solvency II."
In addition to falling stock markets and regulatory upheaval, Towers Watson finds companies face a number of challenges to achieve future growth, including the flight to lower-margin, higher risk guaranteed products; increased competition with other financial services; changes in customer demand and buying behaviours; and shrinking life and pensions markets.
Michael Murphy said: “We live in uncertain times and traditional risk management practices are being challenged. A disciplined approach to financial performance management, together with operational and capital efficiency, will be key to building a sustainable and robust business model. The real winners will be those who step back to consider and exploit the wider strategic opportunities emerging from this period of unprecedented change.”
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