6 October 2014

Insurers need to reverse decline: PwC

General insurers need to reverse the decline in regulatory investment and capital expenditure on technology if they are to match life insurers’ investment plans.

This is the finding of the 100th CBI/PwC financial services survey which explained that general insurers are the only major sector planning to reduce capital expenditure on technology and despite Solvency II requirements, they appear to be reducing regulatory investment.

General insurance business volumes fell slightly for general insurers for the second consecutive quarter, but profitability remained broadly stable. For the first time since December 2011, headcount declined slightly with only a minimal increase is expected over the next three months.

It added that insurance brokers recorded a pick-up in activity, albeit at the slowest pace in over a year with growth expected to accelerate next quarter. The survey found that profitability fell slightly and is expected to remain stable over the next quarter.

Jonathan Howe, PwC’s UK insurance leader said: “The biggest area of interest for life insurers is the predicted expenditure on regulation, reflecting the twin demands of Solvency II and the increasing FCA focus on the sector. Aligned to this is the increase in technology spend.

“Life insurers are increasingly optimistic, despite predicting weaker business for the coming quarter.  The sector’s confidence probably reflects the UK’s improving economic performance, but they should watch out for renewed pressure on income streams from a potential rise in interest rates.

“Despite hopes for a recovery in business over the autumn, general insurers’ confidence has fallen again. Weak demand and increasing competition are among the sector’s leading concerns and growing pressure from new entrants suggests that markets will remain tough in 2015. General insurers are the only major sector planning to reduce capital expenditure on technology, and despite Solvency II requirements, they appear to reducing their regulatory investment.  The sector will need to reverse this decline if it is to match life insurers’ investment plans.”

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