European insurance outlook: Insurers face difficult choices

Anamaria Cora
Partener, Departamentul de Audit Financiar Ernst & Young Romania

European life and non-life insurers face important strategic decisions in 2012. Volatility and deterioration in macroeconomic and political factors are disrupting balance sheets, consumers and investors.

Unfolding regulatory initiatives will have a pervasive influence on insurer operations. A mature insurance market across much of the landscape continues to make growth difficult to achieve. And consumer needs and expectations are rapidly changing. These forces are combining to create considerable challenges for insurers seeking to improve both top- and bottom-line performance. Those companies that have a deep understanding of these challenges, and respond with strategic solutions, will outperform their peers.

Economic developments in Europe create significant risks to insurer balance sheets and may result in a prolonged and stagnant organic growth environment.

Fiscal imbalances that guided the downgrade of sovereign debt in weaker European countries have adversely affected the balance sheets of numerous European insurers and reinsurers. Possible sovereign defaults, which may spread to other countries and sectors, could further reduce asset portfolios. A sudden spike in interest rates would further destabilize insurer  portfolios and loss reserves, challenging the ability of insurers to remain competitive in the marketplace. Finally, wider recessionary conditions could reduce consumer and business demand for insurance products and services, adding to the restrictions in top-line growth potential.

Proposed regulatory changes transforming solvency and accounting standards will affect insurers from both a capital management and operational standpoint. For instance, insurers will be compelled to rethink their business and product mix in light of the anticipated capital requirements. These looming regulatory challenges will require insurers to support new reporting requirements with improved data quality and possibly with overhauled financial systems. Adding another dimension to these regulatory pressures are customer protection concerns from the country level, which may further induce insurers to alter their products and distribution.

Ernst & Young believes that five broad needs are emerging to command management’s attention in 2012:

1. Retool the organization to quickly respond to challenges
2. Transform financial operations and systems
3. Integrate risk management to identify emerging and diffused risk
4. Rationalize product portfolios to reflect a changing consumer market
5. Adapt distribution channels to remain competitive

Sursa: Ernst & Young

This article is also available in: Romanian

This post is also available in: Romanian

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