Soft pricing and low interest rates no excuse for underperforming: Willis

Certain companies have delivered markedly different levels of returns than others despite soft pricing and low interest rates, according to a five-year Willis Tower Watson (WTW) study looking at insurers operating in similar classes of business and the same economic environment.

Willis also found that the trimming of business portfolios had increasingly become a viable option for differentiating returns, enabling companies to direct their resources towards markets with better growth opportunities.

Regarding investment strategy, Willis found that key drivers of returns were the type and duration of the bond portfolio; regional allocations and currency hedging; whether asset allocations are dynamic; levels of matching, hedging and other derivatives; and the use of alternative assets.

Companies that were outperforming the market were found to be typically making use of a wider range of capital management measures.

Charlie Kefford, a director at Willis Towers Watson, said: “The aim was to investigate how companies performed against their peers during a period where below average natural catastrophe occurrences and strong competition have led to softening prices in a number of segments, and whilst interest rates have remained at historic lows.

“The significant performance spread among direct competitors in the UK non-life insurance market over the last five years demonstrates that companies have the ability to break free from the chains of external factors to improve stakeholder returns.”

The analysis found that UK non-life insurers had performed relatively well compared to other industry sectors in these market conditions, having averaged a return on equity of nearly 8 percent over the last five years.