Optimism in the UK insurance sector increased in the three months to September, according to a poll
The latest CBI and PricewaterhouseCoopers Financial Services Survey found that the entire financial services sector is now more upbeat about its overall business situation than it has been for almost 17 years.
Jonathan Howe, PwC's UK insurance leader, said life insurers saw the strongest growth in optimism for three quarters. This affected business volumes, which quickly rose over the same time period, after declining for two quarters. However, the survey found that the level of business was still judged to be below normal.
'With pricing power squeezed, profits fell, but life insurers expect a return to growth in profits next quarter, supported by predictions of growing premium and investment income,' stated the survey.
Howe explained that the industry was showing strong signs of recovery compared to the low profitability concerns of previous quarters.
'A rapid increase in business volumes is reflective of the increased confidence amongst life insurers, bolstered by predictions of growing premium and investment income,' Howe said.
'The search for growth opportunities is still continuing, with investment in new technologies expected to increase.'
As such employment in life insurance also grew and is expected to rise further. The report noted that recruitment was driven by two key factors: regulation and strategic change.
The general insurance sector saw a modest improvement this quarter, while profitability rose at its fastest pace since March 2008 and business volumes showed a second successive quarter of growth.
'The sector saw more positive results in the higher fee and premium income, alongside a fall in costs,' he said.
However, general insurers are faced with mixed outlooks for the next quarter, said Howe.
General insurers were mildly more optimistic, driven by strong growth in business volumes. Therefore, an improvement in business demand is expected during the next quarter, but caution remains over predictions of a future rise in compliance and claim costs.
'The increasing requirements of the new regulator [the Financial Conduct Authority] pushes the conduct agenda back to the top of board's priority list,' added Howe. 'The sector should use this as a reminder of the need to focus on changing customer needs and the opportunity that this brings.'
Meanwhile, optimism among insurance brokers rose slightly and business volumes exceeded expectations. Profitability increased at its fastest pace since March 2011.
'Insurance brokers expect robust growth in volumes and profitability next quarter,' the report added.
