Brokers' profitability down, survey shows

Broking firms’ profitability has fallen for the first time in a year and a half, according to the latest CBI/PricewaterhouseCoopers’ financial services survey.

The quarterly snapshot shows that brokers’ profitability fell slightly in the three months to June as fee and commission income values contracted. The fall follows five consecutive quarters of growth.

And it shows that while brokers expect a further decline in profitability over the next three months, business volumes have risen for the first time since March 2009.

The same survey shows that insurers’ overall profitability fell for a third quarter in a row with another fall is anticipated in the three months ahead.

But insurers’ business volumes were generally unchanged last quarter with a slight increase expected in the three months ahead.

The changes in the insurance sector took place against a backdrop of the fastest growth in the financial services sector as a whole since September 2007 and the fourth consecutive quarter of improved profitability.

Andrew Kail, lead insurance partner for PWC said: "Optimism seems to have returned to the general insurance sector as volumes of business and customer demand have been relatively stable.

“However, there are a number of dark clouds on the horizon, most notably an expected decline in premium income, driven by downwards pricing for commercial lines of business, and an upwards trend for claims values.

“Profitability has declined for the third quarter in a row as higher customer churn, weaker investment returns and a tougher claims environment puts profitability under pressure. As plans for domestic growth remain weak, many insurers will be looking to international markets to drive growth during the year ahead.”