SYDNEY: Insurance executives are cautiously optimistic about the next 12 months, with many expecting to experience growth, according to a recent global survey.

KPMG International and the Economist Intelligence Unit conducted the survey, A Glimmer of Hope: Growth prospects in the global insurance industry and the escalation of risk and capital management, of 315 industry executives from 49 countries in March and April 2009.

The results show that more than half the respondents expected an improvement in organic growth (55 per cent) and an improvement in growth by acquisition or takeover (53 per cent) during the next 12 months. Respondents were also positive about their business prospects as they relate to premium volume (53 per cent), expense ratio (53 per cent) and capital reserves (47 per cent). They were least positive about their share price, with only 40 per cent expecting to see an improvement in this area. Brian Greig, Head of Insurance for KPMG in Australia, said he believes the outlook for Australian insurers is probably more optimistic than that reflected in the global result.

“Australian insurers have a great story to tell around their capital reserves. We have one of the strongest capitalised insurance sectors in the world right now,” he said. “The insurance industry has not been so deeply affected by current economic conditions and executives within it are perhaps more optimistic about their prospects for the coming year than those in other financial services sectors.

“Australian insurers have stuck to their core businesses, which has lessened their exposure to the capital markets. However, a return to confidence in the capital markets is important if insurers are to recover quickly.”

Concern over the impact of the weakened global economy, and particularly the capital markets, is further evident in the increased focus that insurance companies are placing on risk management. In fact, 81 per cent of respondents have increased the level of priority they place on market risk in the past 12 months. Credit risk has the next biggest increase in priority, according to 79 per cent of respondents.

In terms of drivers for an insurance company’s capital requirements, current and future regulatory requirements were cited by more than 80 per cent of respondents. They considered these by far the most significant drivers, ahead of internal management requirements, credit rating, market (shareholder) expectations, debt-holder requirements and share price.

“Regulators and governments will monitor the progress of insurers in their efforts to strengthen risk management and capital planning practices,” noted Frank Ellenbuerger, Head of KPMG’s Global Insurance practice. “Well designed and actionable procedures for mitigating the risks that created so much recent instability will be key to restoring faith in the markets.”

Despite respondents saying that they were significantly increasing their focus on risk management activities, the survey also indicated that they were already confident about their achievements in the area. When asked about their effectiveness in 11 different areas of risk management, more than two-thirds of respondents believed their company was effective in each case.

According to Greig, risk management frameworks are enhanced and already well embedded in Australia. Other key findings in the study include:

* Fifty-three per cent of respondents said their companies would increase investment in risk management-related resources over the next year, with 45 per cent stating that their investment budget would remain unchanged. Only 2 per cent said they would decrease investment. The top three areas for investment in the area were training (38 per cent), processes and policies (37 per cent) and information technology systems (36 per cent).

* Fifty-three per cent of respondents also indicated that their companies would increase investment in capital management-related resources over the next year. Forty-five per said their investment budget would remain unchanged. Again, just 2 per cent expected a decrease in investment. The top three areas for investment in the area were processes and policies (38 per cent), information technology systems (35 per cent) and risk governance (32 per cent).

* Thirty-four per cent of boards said they are spending 40 per cent or more of their time on risk management compared with only 11 per cent 12 months ago.

* Thirty per cent of boards said they are spending 40 per cent or more of their time on capital management compared with 18 per cent 12 months ago.

* The top three activities in which the risk management function plays an active role were new product development (82 per cent of respondents), strategy development (73 per cent) and pricing (70 per cent).