The latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) has revealed that a year of catastrophic losses, on-going soft pricing and regulatory uncertainty has hit confidence in the insurance sector hard.

The index states that confidence in the insurance, banking and finance sector is at its lowest level since the first quarter of 2010. Since then the BCM Confidence Index for the sector has fallen by two thirds to +12.0.

Peter Allen, head of the financial services group at Grant Thornton, said: “For the insurance industry, 2011 so far has been characterised by a series of expensive catastrophes which have hit profitability – but not sufficiently to create a turn in the pricing cycle.

“Natural disasters in New Zealand, Australia and Japan have meant that first half results for most re/insurance businesses are showing losses which, combined with a poor pricing environment and investment returns, are reducing confidence in the sector.

He added that continued regulatory pressure, coupled with high levels of uncertainty as to the timing and final scope of Solvency II and the wholesale changes in the regulatory structure have all contributed to the lack of confidence.

“Solvency II has required a significant investment of both time and money by re/insurers, as they put in place the wide ranging changes to capital and reporting requirements," said Allen

"The fact that there is still debate as to whether the implementation date will be January 2013, or the start of 2014, is not helping the industry to feel that it can prepare with confidence.”

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