Chief financial officers (CFOs) at North American property & casualty (P&C) insurers say their financial strength (61%) is the primary driver of capital utilization decisions, far outpacing taking advantage of opportunistic ventures (30%) and market demand for products and channels (26%), according to a new survey on capital use and reserving. Global professional services company Towers Watson conducted the P&C Insurance CFO Survey."Insurers' focus on financial strength does not come at the expense of growth and innovation," said Alejandra Nolibos, director in Towers Watson's P&C business. "Companies are banking on operational excellence and competitiveness as worthy investments that will drive the bottom line. The biggest hurdle? Technology."
In fact, respondents indicated an impressive pipeline of investments in their business. About half said they plan to deploy capital in analytics, data or technology-related areas in the next one to two years. Many also intend to invest in enhancing their core data systems and infrastructure in a number of essential operational areas such as pricing, underwriting and product development. Technology presents the greatest challenge to execution for 44% of the respondents.
"The focus on financial strength, however, seems to be supported by CFOs' concerns about the risks inherent in loss reserves," clarified Nolibos. "They see reserve releases that may dry up soon and fear a turn in the relatively benign claim environment we've experienced in the last decade."
The survey reveals the perception that cautious initial reserves (39%) allowed the continued favorable development observed in the industry over the last five years. Seventy percent of respondents expect the industry to exhaust any remaining redundancies within one to three years, however. In addition, nearly three-quarters (74%) are extremely or moderately concerned about two major risk factors: unexpected cost trends; and changes in the social, legislative and judicial environment.
About the Survey
Towers Watson's North American P&C Insurance CFO Survey Program is conducted to obtain CFOs' perspectives on various issues. This eighth survey was open to respondents from September 30 through October 28, 2014, and focused on capital use and reserving in the P&C insurance market.