KPMG SURVEY
INSURANCE EXECUTIVES EXPECT GROWTH IN NEXT 12 MONTHS, ACCORDING TO KPMG SURVEY
But Main Focus Areas Will Be Risk Management and Regulation
Bahrain, June 9, 2009 - Insurance executives are cautiously optimistic about the next 12 months, with many expecting to experience growth, according to a recent survey by KPMG International and the Economist Intelligence Unit.
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.
Bahrain, June 9, 2009 - Insurance executives are cautiously optimistic about the next 12 months, with many expecting to experience growth, according to a recent survey by KPMG International and the Economist Intelligence Unit.
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 percent) and expect an improvement in growth by acquisition or take-over (53 percent) during the next 12 months. Respondents are also positive about their business prospects as they relate to premium volume (say 53 percent), expense ratio (say 53 percent) and capital reserves (say 47 percent). They are least positive about their share price, with only 40 percent of respondents expecting to see an improvement in this area.
“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,” said Frank Ellenbuerger, head of KPMG’s Global Insurance practice and partner in the German firm. “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 percent 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 percent 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 percent and 32 percent of respondents respectively citing them as current major influencers. Senior management remains as the single largest influencer, according to 69 percent of respondents. Ratings agencies decreased the most, with their influence falling by half to 14 percent.
Global Financial Services/2009 Insurance Survey
In terms of drivers for an insurance company’s capital requirements, current and future regulatory requirements were cited by over 80 percent 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 Ellenbuerger. “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
Fifty-three percent of respondents say that their companies will increase investment in risk management related resources over the next year, 45 percent that their investment budget will remain unchanged. Only 2 percent say that they will decrease investment. The top three areas for investment in this area are training (say 38 percent), processes and policies (say 37 percent) and information technology systems (say 36 percent).
Fifty-three percent of respondents say that their companies will increase investment in capital management related resources over the next year, 45 percent that their investment budget will remain unchanged. Only 2 percent say that they will decrease investment. The top three areas for investment in this area are processes and policies (say 38 percent), information technology systems (say 35 percent) and risk governance (say 32 percent).
Thirty-four percent of boards are spending 40 percent or more of their time on risk management compared with 11 percent twelve months ago.
Thirty percent of boards are spending 40 percent or more of their time on capital management compared with 18 percent twelve months ago.
The top three activities in which the risk management function plays an active role are new product development (say 82 percent of respondents), strategy development (say 73 percent of respondents) and pricing (say 70 percent of respondents).
Global Financial Services/2009 Insurance Survey
Demographic Information
Of the 315 respondents:
Twenty-eight percent are in North America, 28 percent are in Asia-Pacific, 31 percent are in Western Europe, 13 percent are in the Middle East and Africa and seven percent are in Eastern Europe.
Forty-nine percent are in non-life insurance, 42 percent are in life insurance and nine percent are in reinsurance.
Sixty-two percent are either a C-level executive or board member, nine percent are either head of a business unit or department, and nine percent are senior vice president, vice president or director.
Fifty-one percent represent companies with revenues between US$500 million to US$1 billion, 10 percent represent companies with revenues between US$1 billion and $10 billion, and six percent represent companies with revenues of more than US$10 billion.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of 650 analysts, we continuously assess and forecast political, economic and business conditions in more than 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.
About KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 144 countries and have 137,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
“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,” said Frank Ellenbuerger, head of KPMG’s Global Insurance practice and partner in the German firm. “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 percent 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 percent 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 percent and 32 percent of respondents respectively citing them as current major influencers. Senior management remains as the single largest influencer, according to 69 percent of respondents. Ratings agencies decreased the most, with their influence falling by half to 14 percent.
Global Financial Services/2009 Insurance Survey
In terms of drivers for an insurance company’s capital requirements, current and future regulatory requirements were cited by over 80 percent 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 Ellenbuerger. “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
Global Financial Services/2009 Insurance Survey
Demographic Information
Of the 315 respondents:
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of 650 analysts, we continuously assess and forecast political, economic and business conditions in more than 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.
About KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 144 countries and have 137,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
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