Insurance executives expect to increase in 2010 are, however, moderate on the subscription profits: KPMG survey

 

Thursday, Sep 24,2009, 1:32:24 PM   Click:

Insurance leaders see their results above market expectations in general in 2010, but their outlook on the sector's ability to generate underwriting profits in one or three years is limited, according to an annual survey conducted by KPMG, audit, tax and advisory firm.



In the 21st annual conference of KPMG's Insurance Industry Conference held in Brooklyn, NY, nearly half (48 percent) of the 271 executives surveyed expect their business to proceed ahead of confidence in the coming year . This represents a much more optimistic than the results of KPMG's 2008 survey, while only 22 percent have performed better than expected. Another 36 per cent of participants this year thinking their businesses to perform at a level similar to 2009, only 16 percent said they see corporate performance is below expectations.



Despite optimism about the performance of their business leaders continue to indicate that the underwriting profit may be difficult to achieve over the next three years. In fact, 64 percent see only moderate ability to increase underwriting profits, while over one quarter (27 percent) characterized the prospects of increased profits as "weak."

"The period of the past 18-24 months has been very challenging for many insurers in terms of financial performance," said Scott Marcello, partner, Insurance Industry Leader at KPMG LLP. "While our survey shows some optimism related to future performance, executives have clearly indicated that the industry still faces many risks and the uncertain economic and regulatory environment poses many obstacles to growth and recovery."



Barriers and Challenges



According to the KPMG survey, insurance executives most frequently cited continued unemployment rates and increasing regulatory intervention as barriers to economic recovery. And while nearly a third (31 percent) of executives indicate they don't anticipate their company will need to access additional capital over the next 18 months, the scarcity and high cost of capital was cited as the third largest barrier to overall economic recovery. In the event their company did decide to access additional capital over the next 18 months, 22 percent said the most likely source would be equity while 17 percent said it would be debt.



Interestingly, despite the challenges surrounding access to capital, 73 percent of executives say they expect an increase in mergers and acquisitions when compared to the last 12 months.

When asked to identify the most significant challenges they face in the next three to five years, 30 percent of respondents cited the risk associated with adequately pricing insurance products (referred to as pricing risk) to be the most significant challenge over the next three to five years, followed closely by credit risk, identified by 23 percent of the respondents.



"As expected, there are clear concerns surrounding access to capital and the proposed regulatory changes," added Marcello. "However, there appears to be a multitude of opinions on exactly what the best regulatory solution might be for the industry."



Financial Regulations



When asked about their organization's view around the ongoing debate of financial regulation, executives offered mixed opinions as to the best plan. Twenty-eight percent of executives support an optional change to a federal regulator, 25 percent opt to maintain the current state regulatory system but say some increase in regulation will be necessary, and 17 percent support a mandatory change to a federal insurance regulator. Twenty-five percent do not support any change, and say increased regulation is not needed in the insurance industry.



Other key findings:

-- Product innovation (17%), customer focus (15%) and redeploying capital (14%) seen as most important for fueling future growth. -- 45 percent of execs say their company has made changes to both their risk management processes and their risk appetite/tolerance as a result of the global financial crisis.



KPMG LLP, the audit, tax and advisory firm, conducted the real-time survey of 271 senior executives at its 21st Annual Insurance Industry Conference held at the Marriott at Brooklyn Bridge in Brooklyn, NY, on September 22nd and 23rd.



About KPMG LLP

KPMG LLP, the audit, tax, and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 137,000 professionals, including more than 7,600 partners, in 144 countries.



The views and opinions expressed in the survey results are based on the responses of the survey participants and do not necessarily represent the views or professional advice of KPMG LLP.



Contact: Manuel Goncalves KPMG LLP 201.307.7735 mdgoncalves@kpmg.com



SOURCE KPMG LLP