Better capital management will serve as one of the primary goals for the property-casualty industry next year, according to a report from Ernst & Young.
"The past four years have been marked by unrelenting regulatory scrutiny, unparalleled catastrophic losses and an incredibly vibrant hard market," said Pete Porrino, global director of insurance, Ernst & Young Global Insurance Center.
The industry exhibited strong resiliency in 2006 with advances in the form of stronger balance sheets, better controls, improvements in risk management and continued advances in pricing techniques.
"Together, these factors have created an unusual window of opportunity, attracting new competitors to the market that have a different view of risk and desire to innovate," Mr. Porrino added.
Five key issues will shape 2007 for the p-c insurance market, the report said. They are:
o To maintain and manage profitability, insurers will need to look at three key areas. First, the difference between premium and loss trends; second, cost control; third, capital management.
o The Bermuda sector foreshadows the innovation trend with new market entrants establishing non-traditional organizations, launching competitive new products and pursuing underserved market segments.
o Policyholders in coastal communities are still struggling with claim disputes, limited availability of products and daunting price increases long after the hurricanes that ravaged the Gulf in 2005. In the midst of uncertainty and regulatory intervention, companies will need to manage the "risks" of recovery.
o Reinsurance will be a particularly innovative market in 2007 that will push the limits on the use of advanced analytics at the transaction level as well as in the capital allocation process.
o In an increasingly complex regulatory and reporting environment, driven in part by Sarbanes Oxley and the impending Solvency II framework, leading insurers are moving toward a convergence of risk management activities to better achieve well-controlled and transparent management of risk and capital on a cost effective basis.
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