Life Insurance
Life insurance companies saw a rise in new business values for the first time in over two years, although other income values fell unexpectedly resulting in a sharp reduction in profitability. Business volumes fell sharply across the board, with the exception of overseas customers. Although average spreads rose by the greatest extent on record, average fees, commissions & premiums fell at a record rate. The net result was a reduction in profitability that was more pronounced than had been expected.
General Insurance
Optimism in the general insurance market rose for a fifth successive quarter, despite further falls in business volumes, values and profitability. The declines were, however, broadly as expected with the exception of interest, investment or trading incomes which suffered a much heavier fall than anticipated.
Insurance Brokers
Business confidence among insurance brokers rose at its fastest rate since September 1993, as business volumes didn’t fall as expected and profitability rose much faster than had been anticipated. The decline in employment gathered pace during the latest quarter; however a reversal is predicted in early 2010 with positive expectations recorded for the first time in almost two years.
Andrew Kail, UK insurance leader, PricewaterhouseCoopers LLP, said: “The run of confidence insurers have enjoyed for the past five quarters will be more difficult to sustain. The potential increase in the cost of claims, weaker investment returns and the lack of rate hardening has driven the more gloomy short-term outlook. As a result, headcount reduction and a cut in operating expenses seem firmly on insurers’ agendas for 2010. The sector has also reported low investment plans for regulatory compliance, which is at odds with efforts the industry is making to meet the requirements of Solvency II.
“Although the life insurance sector reports an increase in optimism, this seems to be pinned on a hope of a future recovery in demand rather than short-term reality. The sector continues to report persistently weak customer demand for its core products and this is leading to a strong focus on cost reductions. Concern remains around the cost of compliance as the sector continues to focus on Solvency II implementation and other regulatory challenges.”
