GI bucks financial downturn

General insurance bucked the downward trend in the UK financial services sector, which has been hit by record drops in income levels and business volumes and has cut jobs at the fastest rate since 1993 a CBI survey by PricewaterhouseCoopers has found.

For general insurance the survey of the past three months found:

• Profitability improved
• Growth in both income values and business volumes
• Average costs per transaction down
• Employment increased strongly and is predicted to grow at a similar pace over the next quarter
• Plan to increase investment in IT, but cut back on other capital expenditure in the coming year relative to the last, including spending on marketing

Andrew Kail, UK insurance leader, PricewaterhouseCoopers, said:

“General insurers feel even more optimistic than they did in December, and are more confident than at any point since 2005, largely as a result of the impact of harder premium rates on underwriting profitability. Companies are expecting to grow across personal and commercial lines and new customers are seen as the most promising source of growth. Claims are increasing at a manageable pace, although the negative effects of the downturn may take several quarters to emerge fully. The anticipated improvements in pricing have put profitability on an upward trend for the first time in a year and in contrast to the rest of financial services.”

Across financial services as a whole the survey found that 9% of firms said that volumes rose, while 56 per cent said they fell. The ensuing balance of -47% marked a sixth quarter of steep declines and was worse than firms had expected (-25%)

The following figures refer to the balance of respondents:

• 10% expects volumes to drop further over the next three months
• 47% of firms reported a decline in profitability, which reflected a slight easing back from December’s record drop (-55%), and a further slowing in the decline is expected over the three months ahead (-27%).
• 53% of firms reported a drop in fee, commission and premium incomes
• 54% saw falls in net interest, investment and trading incomes.
• The rate of fall in volumes of business slowed for all except overseas customers. Firms expect volumes of business with industrial & commercial companies and private individuals to contract again over the next three months, though at a slower rate.
• 34% of firms said they were less optimistic about the overall business situation in the financial services sector than they were in December.
• 40% of firms said total operating costs (excluding costs of funds) had fallen, which was the fastest rate of decline since December 1993 (-49%).
• 40% of firms reported a reduction in headcount, making the numbers employed in financial services fall at their heaviest rate since June 1993 (-41%).