According to the latest CBI/PwC Financial Services Survey, launched on Monday, optimism among UK life insurers improved for a fourth consecutive quarter, during the three months to June, though at the slowest pace over this period so far. Business volumes fell unexpectedly for a second consecutive quarter.
Market conditions remain challenging for life insurers, weighing on investment incomes, and with pricing power also under pressure profits fell markedly. 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 in the three months to September.
General insurance was the only sector in the survey where respondents were less optimistic relative to three months ago. Business volumes fell for the first time since early 2013, driven by a decline in business with overseas customers. However, business volumes are expected to recover somewhat in the three months to September.
Jonathan Howe, PwC’s UK insurance leader , comments “General insurers are the only key 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 the losses. Insurers are looking for new ways of increasing market share other than reducing price.
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.
On a more positive note, life insurers remain upbeat about their outlook despite an unexpected fall in volumes of business. The sector is hoping for a pick-up in new business over the summer as customer confidence grows.”
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