Insurance executives expect growth in next 12 months, according to KPMG survey

KPMG conducted their Insurance survey, "A Glimmer of Hope: Growth prospects in the global insurance industry and the escalation of risk and capital management," of 315 industry executives from 49 countries in March and April 2009.

The results show that more than half the respondents expect an improvement in organic growth (55%) and expect an improvement in growth by acquisition or take-over (53%) during the next 12 months. Respondents are also positive about their business prospects as they relate to premium volume (say 53%), expense ratio (say 53%) and capital reserves (say 47%). They are least positive about their share price, with only 40% of respondents expecting to see an improvement in this area.

Commenting on the sidelines of the International Insurance Society Seminar in Jordan recently, Muhammad Tariq, head of KPMG's UAE Insurance practice and partner in the UAE firm, said:

"The insurance industry has not been so deeply affected by current economic conditions and so executives within it are perhaps more optimistic about their prospects for the coming year than those in other financial services sectors. However, executives do still foresee a continuing lack of confidence in the capital markets as stifling to their recovery."

Concern over the impact of the weakened economy, and particularly the capital markets, is further evident in the increased focus that insurance companies are placing on risk management. In fact, 81% of respondents have increased the level of priority they place on market risk in the past 12 months. Credit risk has the next biggest increase in priority, according to 79% of respondents. While these were the largest increases in priority, at least two-thirds of respondents had increased the priority of all core business risks, including aggregation of risk at a firm-wide level, operational risk, economic capital risk, underwriting risk and stress testing.

Both regulators and government showed double-digit growth in terms of influence on company risk management policy and execution, with 65% and 32% of respondents respectively citing them as current major influencers. Senior management remains as the single largest influencer, according to 69% of respondents. Ratings agencies decreased the most, with their influence falling by half to 14%.

In terms of drivers for an insurance company's capital requirements, current and future regulatory requirements were cited by over 80% of respondents. Respondents considered these to be by far the most significant drivers, ahead of internal management requirements, credit rating, market (shareholder) expectations, debt-holder requirements and share price.

"Regulators and governments will monitor the progress of insurers in their efforts to strengthen risk management and capital planning practices," said Tariq. "Well-designed and actionable procedures for mitigating the risks that created so much recent instability will be key to restoring faith in the markets."

Despite respondents saying that they are significantly increasing their focus on risk management activities, the survey also indicates that they are already confident in their achievements in this area. When asked about their effectiveness in 11 different areas of risk management, over two-thirds responded that they believed their company was effective in each case.

Other findings:

• 53% of respondents say that their companies will increase investment in risk management related resources over the next year, 45% that their investment budget will remain unchanged. Only 2% say that they will decrease investment. The top three areas for investment in this area are training (say 38%), processes and policies (say 37%) and information technology systems (say 36%).
• 53% of respondents say that their companies will increase investment in capital management related resources over the next year, 45% that their investment budget will remain unchanged. Only 2% say that they will decrease investment. The top three areas for investment in this area are processes and policies (say 38%), information technology systems (say 35%) and risk governance (say 32%).
• 34% of boards are spending 40% or more of their time on risk management compared with 11% twelve months ago.
• 30% of boards are spending 40% or more of their time on capital management compared with 18% twelve months ago.
• The top three activities in which the risk management function plays an active role are new product development (say 82% of respondents), strategy development (say 73% of respondents) and pricing (say 70% of respondents).

Demographic Information:

The 315 respondents included representation from the Middle East and emerging markets in Asia Pacific and Eastern Europe, and comprised the following:
• 49% in non-life insurance, 42% in life insurance and 9% in reinsurance.
• 62% at either a C-level executive or board member level, 9% either head of a business unit or department, and 9% at senior vice president, vice president or director level.
• 51% representing companies with revenues between $500m to $1bn, 10% representing companies with revenues between $1bn and $10bn, and 6% representing companies with revenues of more than $10bn.