Insurers to Return to ‘Underwriting Disciplines’ Next Year – KPMG

Michelle Remo, “Big 4″ observer
December 30, 2011 /

The coming year will see a return to underwriting disciplines for general insurers as their financial performance comes under greater scrutiny and they face increased regulatory interest, a KPMG official said.

“2011 could be defined as a solid year. Non-life insurers were beset by overseas catastrophes, yet met their commitments. Elsewhere some enjoyed a gradual strengthening of the personal lines rates,” said Mark Winlow, UK head of general insurance at KPMG.

“However, reserves have thinned and premiums, despite some growth, have not got ahead of claims. The focus in 2012 will be on tightening the screws to make the most of shareholders’ capital, which means the insurers must improve their core skill of underwriting.”

Although the FSA will cease to exist in its current form in 2012, its legacy of close scrutiny of insurers is likely to intensify with the arrival of separate prudential and conduct of business regulators, according to Winlow.

“I anticipate there will be further specific thrusts by the regulator and the Office of Fair Trading into ancillary products and other income sources such as motor insurance referral fees,” he said.

“And, whilst the UK’s relationship with Europe might be changing, the new-look regulator is committed to Solvency II and it will move on relentlessly.”

Winlow added: “General insurers, on the whole, have not invested in Solvency II to the same level as life companies. Rightly so, however I expect general insurers will spend much more time and money than they currently have planned in proving they are competent with their capital and using it wisely.

“The focus on capital will be the catalyst for analysts and rating agencies to raise the bar in terms of insurer disclosure. More questions will be raised about the scale and sustainability of dividends as well as potential return of funds to shareholders. This, in turn, may create pressure for more mergers and acquisitions.

“Whilst the UK continues to be the prime general insurance market, geographies outside the UK will have a more marked importance than ever. Does the UK insurance market truly understand the overseas business it writes? Why underwrite in the UK or Europe? Why not concentrate on the growing markets of Asia Pacific or Latin America? Only by demonstrating true underwriting excellence will the UK general insurance market continue to attract the capital it needs.”

 

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