Insurance Execs See More Regulation As Mixed Bag

Conducted in August and September, the survey asked what insurance executives saw in terms of their companies' growth prospects and priorities through 2012, with particular focus on risk and capital management functions.

The survey group said key barriers to growth between now and 2012, in addition to increased regulation, included generally poor macroeconomic prospects, increased operating costs, and the scarcity and high cost of capital.

Scott Marcello, KPMG LLP's U.S. insurance practice leader, said in a statement announcing the survey: "As the dust settles following the financial crisis, the reality of the long road to recovery has become clear to the insurance industry. Many executives have come to the conclusion that new regulation may not be a pleasant medicine in terms of short-term growth but ultimately it's good for the industry."

When asked about the possible impact of increased regulation for the industry over the next three years, 52 percent of U.S. respondents felt positive that it would help improve risk management; 46 percent saw it as encouraging a longer-term view of business; 44 percent said it would improve capital management; and 43 percent said it would create better financial stability.

KPMG said compared to a similar survey it took last May, there has been an erosion of optimism about the growth prospects in the industry.

The expectation of growth via acquisition or takeover dropped 30 points to 38 percent. Confidence in organic growth decreased 10 points to 51 percent. Despite this drop, organic growth remained the most positive area expressed by the executives, along with underwriting profitability (51 percent), expense ratio (48 percent) and capital reserves (47 percent).

KPMG's May 2009 survey was titled "A glimmer of hope: growth prospects in the global insurance industry and the escalation of risk and capital management," and executives then expressed more optimism about growth, the company noted.

Regarding expected new regulations, Mr. Marcello said that insurance companies clearly view them "as an opportunity to strengthen the basics of their business, particularly in terms of risk and capital management. We are seeing insurance companies increasing their focus on, and investment in, these areas, which is a wise step toward securing a strong market position and responding to marketplace challenges."

Asked to select the three top priorities of company leadership, KPMG found what it said is "a combination of opportunistic and defensive strategies."

Opportunistically, 35 percent plan to launch new products/services; 28 percent plan to diversify into new geographical areas; and 26 percent plan to diversify into new market areas. Defensively, 41 percent said that there will be an increased focus on their core business, and 33 percent will focus on improving their ability to identify and mitigate risk.

With regard to improving risk and capital management specifically, respondents indicated they will emphasize improving risk-based decision-making, more effective use of capital and managing earnings volatility.

The poll respondents said the most important steps their companies will take to improve management of risk, include:

? o Improving the coordination between the risk function and the lines of business.

? o Increasing the involvement of the risk function in strategic business decisions.

? o Improving the quality of risk reporting.

? o Improving the coordination between the risk and finance functions within their companies.

The survey was undertaken by The Economist Intelligence Unit for KPMG International.

Approximately 65 percent of respondents, the company said, represent businesses with annual revenues in excess of $500 million. More than 60 percent of respondents were chief executive level or board level executives, and the vast majority have responsibility for finance, risk or general management. Respondents were split among life insurance (46 percent), non-life insurance (47 percent) and reinsurance (7 percent) companies or divisions.