Business volumes in the UK life insurance market fell for a second successive quarter this year, while profitability declined during the same period, according to a quarterly poll published today.
30 JUNE 2014 | BY JUDITH UGWUMADU
The latest CBI and PricewaterhouseCoopers Financial Survey, which polled 98 firms, revealed, however, that the entire financial service sector saw business volumes grow in the three months to June, except for life insurance.
'Market conditions remain challenging for life insurers, weighing on investment incomes and with pricing power also under pressure profits fell markedly,' the report stated.
'Although respondents expected a recovery in business volumes, profits are expected to fall at a similar pace next quarter, as costs growth picks up and investment income remains flat. Life insurers reduced employment slightly in the quarter to June, with headcount expected to edge down at a similar pace next quarter, as costs growth picks up and investment income remains flat.'
Nonetheless, optimism among life insurers improved for a fourth consecutive, the CBI/PwC survey noted.
General insurance was the only financial services sector in the survey where respondents were less optimistic compared to three months ago. The CBI/PwC poll highlighted that business volumes fell for the first time since early 2013, driven by a decline in business with overseas customers. In addition, profitability fell for a successive quarter, reflecting a sharp increase in the value of insurance claims.
But profits are expected to be broadly stable next quarter, the poll noted, as it hinted that the sector would remain cautious over their hiring plans and are expected to cut back investments across the board in the year ahead.
PwC's insurance leader Jonathan Howe said: 'General insurers are the only sector to report lower confidence. Competition and demand are major concerns and although economic recovery is driving an uptick in demand, this is unlikely to be sustainable.
'Customer acquisition is becoming a "zero sum game" in the mature UK general insurance market - any wins are cancelled out by losses. Insurers are looking for new ways of increasing market share other than reducing prices.
'General insurers are the only major sector expecting to reduce capital investment. Despite this, investment in technology is seen as increasingly crucial to growth in this highly competitive market.'
Insurance brokers, however, saw growth in business volumes pick up, compared to the previous quarter, and is expected to accelerate further next quarter. Profitability was broadly stable over the three months to June and with profits expected to increase insurance brokers are expected to grow their headcount in the coming three months, and raise investment in the year ahead, the CBI/PwC poll said.