KPMG Insurance Survey Shows Confidence in 2010

Insurance executives see their companies performing above general market expectations in 2010, but their outlook on the industry's ability to generate underwriting profit in the next one to three years remains restrained, according to an annual survey conducted by KPMG, the audit, tax and advisory firm.

At KPMG's 21st annual insurance industry conference, nearly half (48 percent) of the 271 executives surveyed expect their company to perform ahead of expectations in the year ahead. This represents a more bullish outlook than the results of KPMG's 2008 survey, when only 22 percent saw performance being better than expected. Another 36 percent of this year's attendees thought their companies would perform at a level similar to 2009; just 16 percent said they see company performance being below expectations.

Despite the optimism around their company's performance, executives continue to indicate that underwriting profit may be elusive in the next three years. In fact, 64 percent see only a moderate ability to increase underwriting profit, while more than a quarter (27 percent) characterized the chance of increased profit as "weak."

"The period of the past 18-24 months has been very challenging for many insurers in terms of financial performance," says Scott Marcello, partner and insurance industry leader at KPMG. "While our survey shows some optimism related to future performance, executives have clearly indicated that the industry still faces many risks and the uncertain economic and regulatory environment poses many obstacles to growth and recovery."

According to the KPMG survey, insurance executives most frequently cited continued unemployment rates and increasing regulatory intervention as barriers to economic recovery. And while nearly a third (31 percent) of executives indicate they don't anticipate their company will need to access additional capital over the next 18 months, the scarcity and high cost of capital was cited as the third largest barrier to overall economic recovery. In the event their company did decide to access additional capital over the next 18 months, 22 percent said the most likely source would be equity while 17 percent said it would be debt.