The quarterly PwC/CBI financial sevices survey commented on the UK insurance market.
Life insurers’ business volumes grew, albeit at a slower rate, completing two years of consistent growth in sales, a performance that has been matched by profitability. Even so, rates of increase in incomes from premiums and in the value of new business are rather moderate, and life companies were less optimistic than they were three months ago. Firms fear lower volumes, incomes and profits next quarter. Staff turnover fell unexpectedly, while numbers employed increased and are predicted to do so again next quarter.
General insurers saw very marginal growth in premium income and in business volumes, but expect they will improve faster in the coming quarter. The value of investment income was much lower for the second successive quarter, while average costs were higher, so that the impact on profitability was more negative than expected. Numbers employed were reduced for the third quarter running. The trend in the value of insurance claims in the past year was higher than its long run average for the sixth consecutive quarter.
Brokers’ profitability fell back after an unexpectedly strong fall in the volume of business and value of premium income. Total operating costs fell, but the decline in volumes was sufficiently steep to push average costs per transaction up strongly. Profitability is expected to fall again, with volumes and premium income, next quarter, but to do so at a much slower rate. Brokers also plan to invest much less in the year ahead on premises, vehicles, IT systems and marketing.
Howard Scott, insurance partner at PwC, said
“Life insurers’ predictions for the new year are downbeat as they struggle to contend with the unhelpful combination of falling consumer confidence, a quiet housing market, tighter household budgets and volatile investment markets. This difficult environment is expected to hurt profitability, with most life insurers expecting a significant dip in the next quarter. Regulation remains a major preoccupation and companies are investing in their sales channels in preparation for the Retail Distribution Review9RDR). However, growth in compliance-driven spending is slowing as Solvency II deadlines continue to move back.
Intense competition in the retail market, especially in home and motor insurance, coupled with the recent run of natural catastrophes and increasing value of claims continues to put pressure on general insurers’ profits. Insurers’ hopes for the early part of 2012 rest on growth in commercial lines and an anticipated recovery in business with overseas customers. General insurers continue to plan further headcount reductions in response to the tough market conditions.”
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