GI bucks finance services fall

General insurance bucked the downward trend in the financial services sector and predicts a rapid bounce back according to the latest Confederation of British Industry/PriceWaterhouseCoopers survey.

The survey out today said income and profitability levels in the UK financial services sector fell at record rates as the recession deepens and the credit crunch continues to bite.

But its sector analysis for general insurance reported: “Business volumes fell for the third quarter in succession, but the level of business was considered to be just above normal, and the insurers predict a rebound in volumes next quarter. Profitability fell very strongly this quarter, reflecting higher total costs, and a large fall in net interest and investment income. There was also a big rise in the value of insurance claims during the past year. Again though, predictions for next quarter are for a bounce upwards in the profit trend from higher volumes, falling total costs and higher premiums.”

Overall the survey covering the three months to early December found:

• 17% said that business volumes rose, while 59% said they fell.
• 42% continued a year-long run of steep declines and was worse than firms had expected.
• 25% expect volumes to fall further over the next three months.
• 55% reported a fall in profitability.
• 19% predict profits will drop over the coming three months
• 51% reported a drop in fee, commission and premium incomes
• 48% saw falls in net interest, investment and trading incomes.
• the rate of fall among industrial and commercial companies stood out as a survey record (a balance of -36%), although this is expected to ease off in the coming three months (-14%). And there was a further heavy contraction in business with private individuals (-41%), where expectations for the quarter ahead were particularly weak (-38%)
• 45% said they are less optimistic about the overall business situation in the financial services sector than they were in September
• 25% of firms reported a fall in total operating costs, which was the fastest drop since December 1993 (-49%) and this rate is expected to sharpen further in the coming three months (-37%). Average operating costs fell slightly, with a steeper fall expected
• The value of non-performing loans, or bad debt, worsened by a survey record balance of +50% - a higher rate than expected and with little let-up predicted in the coming quarter (+48%)
• The numbers employed in financial services continued to fall (a balance of -23%), but by less than feared.
• 35% expects headcounts to fall in the coming three months
• Capital expenditure in land and buildings, and vehicles, plant & machinery
• 41% of firms said a shortage of finance is likely to limit capital expenditure in the year ahead.
• Asked what factors are most likely to prevent business expansion over the next year, 79% of firms cited the level of demand, and 49% were concerned about legislation and regulation.
• 86% thought that it will take more than six months before normal market conditions resume, and none believe it will happen within three months. John Cridland, CBI Deputy Director-General, said: "2008 was the year the financial services industry would rather forget, and unfortunately it looks set to remain under pressure in early 2009. As income and profitability have tumbled, so there will be more job losses and cuts in investment, and stark implications for the rest of the UK economy.

"Flows of credit to the corporate sector remain constrained, and viable businesses are finding the availability and cost of credit very restrictive. The shortage of trade finance is hitting many industries and businesses. The Government is going to have to take further steps to tackle these critical issues."