Posted on 08 Oct 2010
The majority of U.S. insurance industry executives remain guarded
about their company's performance and the industry's ability to generate
underwriting profit amid continuing economic concerns and the
Dodd-Frank reform package, despite wide sentiment that business
conditions in the sector have improved, according to an annual industry
survey conducted by KPMG LLP, the audit, tax and advisory firm.
KPMG's 22nd annual Insurance Industry Conference more than half (51
percent) of the 300 executives surveyed say that those business
conditions most relevant to their businesses have improved, while 28
percent indicate conditions are the same and 20 percent say they are
worse. However, many do not anticipate much brighter prospects ahead,
as 22 percent predict another downturn/double dip before the economy
begins to significantly recover, and 64 percent believe the recovery
will not occur until 2012 or later.
this economic environment, only 41 percent of execs surveyed expect
their company to perform above expectations next year – a decline of
eight percent compared with 2009 KPMG survey results. Nineteen percent
expect to perform below expectations.
executives continue to tell KPMG that improving underwriting profit may
be challenging in the next three years. In fact, 62 percent see only a
moderate ability to increase underwriting profit, while more than
one-third (34 percent) characterized the chance of increased profit as
KPMG survey findings reflect an expectation that many of the challenges
insurance executives have faced in terms of financial performance over
these past two years will likely persist," said Scott Marcello,
KPMG's National Leader for Financial Services and Insurance Sector
Leader. "In addition to the economic challenges, executives have
clearly told us that regulatory changes, including the recently passed
Dodd-Frank reform package, add to the complexity of the landscape they
Mixed Views on Dodd-Frank
KPMG survey found that opinions around the Dodd-Frank package and the
ramifications it will have on the industry are mixed. When asked about
the reform package which established a Federal Insurance Office (FIO)
and increases the federal government's role in addressing
insurance-related issues, the majority (53 percent) said their company
supports the move as long as it is not redundant with state regulation.
A quarter of executives said their company completely opposes the FIO
because the state-regulated insurance system works well, and there is no
need for federal oversight. Twenty-two percent said they had not yet
formulated an opinion.
of the KPMG conference did agree (82 percent) that the tighter
regulation of banks, including the requirement for higher capital
levels, will make its way in to the current insurance regulatory model.
expected, our survey indicates that executives aren't sure as to the
implications Dodd-Frank will have on insurance company operations," said
Marcello. "Fifteen percent say minimal, while 24 percent say
significant or severe. While the direct impact of Dodd-Frank on many
insurers is expected to be quite limited, there is the potential for a
variety of indirect implications resulting from activities of the newly
formed FIO and Consumer Financial Protection Bureau, as well as other
provisions in the Act. It is clearly understandable that it will take
some time to understand the full range of ramifications for the
asked to identify the most significant challenges they face in the next
three to five years, 44 percent of respondents cited the risk associated
with adequately pricing insurance products (referred to as pricing
risk) to be the most significant, followed by regulatory/market conduct
risk. Interestingly, only nine percent of respondents indicated credit
risk, which is a significant drop from 23 percent in 2009 and 32 percent
are clear concerns surrounding pricing in this soft P&C insurance
market," added Marcello. "And, there appear to be indications that this
market will persist over the nearer-term."
Other key findings:
accessing additional capital this year, 30 percent said the primary
source was debt, 11 percent said reinsurance. Almost half (48 percent)
said their company did not access additional capital in 2010.
- 68 percent expect M&A to increase compared with the past 12 months.
(17 percent), product innovation (15 percent) and underwriting (15
percent) are seen as most important for fueling future growth.
LLP, the audit, tax and advisory firm, conducted the real-time survey of
300 senior executives at its 22nd Annual Insurance Industry Conference
held at the Marriott at Brooklyn Bridge in Brooklyn, N.Y.
, on September 21st