‘Euphoric’ insurers confident about future, finds survey

General insurers are increasingly optimistic about their future, while other financial services companies remain pessimistic, according to a survey by PricewaterhouseCoopers (PwC) and the CBI.

The mood in general insurance is more “euphoric” because respondents believe the hardening market will boost underwriting profitability, the report found (see chart, right).

“This may seem surprising, given insurers’ poor investment returns in 2008, but this cloud has a solid silver lining. The reduction in investment return is a key driver in pushing insurers to increase premium rates,” said PwC and the CBI.

Andrew Kail, a partner at PwC, denied the optimism was misplaced. “General insurers admit they are not immune to their market assets being hit. Their confidence is down to the fact they can increase the fees of their core product.

“General insurers have the advantage in that some of their products have to be bought by law,” he said.

In the three months to March, the value of premium income is reported to have increased for the first time in six quarters. Sixty per cent of survey participants said they expected further expansion in the next three months.

The survey found that demand for general insurance was not greatly affected by the economic cycle and that business would grow across personal and commercial lines. New customers are seen to be the most promising source of growth. The general insurance sector is the only one in the financial services industry that expects to increase its headcount, said the report.

Life insurers are worse off, according to the survey. Life insurers are suffering from exceptionally low levels of business and profitability. The sector is focusing on reducing headcounts and retaining current customers.

Overall, the financial services sector has been hit by record drops in income levels. Business volumes have also continued to fall sharply. The industry has cut jobs at the fastest rate since 1993.

“Conditions in the sector are not uniformly bad, as many general insurers fared quite well,” said Ian McCafferty, chief economic adviser to the CBI.