PwC: “CEOs Concerned About Slow Growth”

February 7, 2014

New research from PwC has revealed that 70% of reinsurance and insurance CEOs are concerned about slow or negative growth in developed markets and 47% view increasing market share as the main opportunity for growth in 2014.

PwC’s 17th Annual Global CEO Survey, launched last month, set out to uncover how chief executives across industries are searching for growth in a still-challenging environment. Among the CEOs surveyed were 74 reinsurance and insurance business leaders in 39 countries in the last quarter of 2013. Further in-depth interviews were conducted with chief executives.

“Global economic recovery remains fragile but CEOs are more positive about the state of the global economy than they were last year,” said Arthur Wightman, Insurance Leader, PwC Bermuda.

“Reinsurance CEOs are concerned about how or whether this recovery will trickle down into better prospects for their own companies.

“In fact, those CEOs are looking past the anticipated margin contraction in 2014 to three bigger trends that they think will transform their business in the next five years: technological advances, demographic changes and shifts in global economic power.”

A spokesperson said, “The search for growth is becoming more complicated as these factors have increasing importance on strategies and operating models and searching for a foothold in ever shifting sands is increasingly difficult.

“Responding in the near term looking forward, global reinsurance premium growth is expected in 2014 and 2015 in the low single digits with emerging markets growth driving much of the growth. The global catastrophe reinsurance market is weathering a tougher point in the pricing cycle with over capacity putting pressure on pricing.

“Alternative capacity is having an impact on the market but is limited to two specific areas and represents about 11% of the global catastrophe reinsurance.

“The two areas where competition is fierce is in the short-tail, data-rich and highly modelled environments of US wind and earthquake and also collateralised reinsurance with the biggest recent growth coming from the latter.

“For certain lines of business a number of reinsurers have reported that January 1 pricing is below acceptable return hurdles. The innovative, multifaceted reinsurers that offer a solution-oriented and long-term partnership model for their customers will prevail in spite of the over-capacity.

“44% of CEOs think that the global economy will grow over the next 12 months, however it will take some time before investment performance can meaningfully contribute to reinsurer ROI. Margin pressure in 2014 presents a material enough challenge, however CEOs are looking beyond current market forces to what they need to do to build enduring businesses in the years to come.”

“The importance of innovation, differentiation and customer relationships will increase in a marketplace that is facing as much change over the next five years as the last fifty,” Mr. Wightman continued. “Reinsurers that are already embracing this will stand to weather competitive challenges on a nearer term basis.”

Looking out five years:

86% of CEOs viewed technology advances as being a global trend would transform their business over the next five years. There is already evidence of ‘risk partnerships’ forming between customer and risk taker where technological and analytical capabilities are being shared as a means to strengthen collaboration and relationships. For many reinsurance CEOs the survey points to innovation and investment in technology as being critical for survival.

On the flip-side, 60% of CEOs see the speed of technological change as a potential threat to their organisations. As analytical tools and data become more accessible, for example RMS One, areas of the market inevitably will become more commoditised as the capital requirements and sophistication of participants represent lower hurdles.

73% of CEOs viewed demographic shifts as being a transformative trend. For example, two-step growth between developed and emerging economies is causing significant redistribution in the world’s workforce. This further compounds the growth differentials and results in a need to better anticipate the reinsurance requirements of a changing customer base.

Thirdly, the shift in global economic power was viewed as a transformative trend by 55% of CEOs. Reinsurance penetration has been challenging in emerging economies with insurance penetration representing less than 3% of GDP.
Making money has been difficult in for Western reinsurers in markets where competition is mounting, foreign ownership may be restricted, and limited data can make risks difficult to price and manage.

After all, profitability is possible only if there is sufficient risk data to ensure pricing accuracy and adequacy.

New ways of assessing and pricing risks will be necessary to contend with often limited risk data; different legal systems, regulatory frameworks, and business practices; and the potential for political instability. For commercial risks, rather than trying to capture the risks within an entire market, it might be more manageable and effective to concentrate on particular industries.

So how can reinsurers capitalise on these transformational trends and move out into the front of a rapidly changing marketplace?

  • Starting with the customer:
      A key, if not the key, defining feature of a successful organisation is its ability to connect with customers in an intuitive, proactive and trusted way; working ‘outside-in’ to create the right solutions.
  • Insight to foresight:
      Big data, and other new analytical techniques can help reinsurers to develop a better understanding of customer behavior, needs, and risks, thereby enabling them to provide more responsive products and more competitive rates while still sustaining margins.
  • Speed to market:
      From a systems perspective, the biggest single problem is that upgrading a complex ‘industrialized’ infrastructure could take several years to complete, by which time the market will have moved on. One way of achieving digital competitiveness is to establish start-ups that run alongside existing capabilities.
  • Adapting to new regulation:
      86% of CEOs believe over-regulation is an organizational threat. Significant regulatory change is likely to remain a fact of life for some years to come. Therefore, one of the most important competitive differentiators is going to be how effectively reinsurers anticipate, adapt and, where possible, take advantage of these changes.
  • Targeted acquisition:
      M&A is seen by industry CEOs as one of the least important areas in capitalising on transformational trends. This is surprising given that the economy is picking up and it may be the best way to acquire new skills and catalyse change.
  • Re-asserting the value insurers create:
      While nearly 60% of CEOs see lack of trust in the business as a potential business threat, the survey also highlights the industry’s determination to re-engage with customers, governments and society as a whole.

Read More About

Category: All, Business

Comments (10)

Trackback URL | Comments RSS Feed

  1. more than enough says:

    they must not have surveyed the companies in bermuda who continue to rake in huge amounts of cash, experience jumps in profits, and record breaking profitability every year.
    and these amounts of cash, or more specifically net profits are so astoundingly large’ and the growth percentage per year, is almost unbelievable.
    it’s no wonder they are concerned about growth in the future…is this truly sustainable?

    • Kangoocar says:

      More than enough!! Please educate yourself better!! Those huge profits you speak of on local companies can be wiped out by one major earthquake or similar disaster!! Just be thankful they can bank some money now for the day that will surely come that they will need it, but in the interim they are providing employment for Bermudians!!! Your ignorance is astounding??? The amount of global/IB business we have here is a small drop in the bucket worldwide!! So wake up, and realize that the global economy sucks and that is why we locally are going to suffer for a long time!! And this has nothing to do with the OBA because we could have been much lest impacted if we had a previous government that was responsible and not laughed at then shadow finance min Richards when he warned them what was coming in 2008, I actually saw it coming in 2007 and prepared for it all the while everyone laughed at me as well??? But today I am financially secure because of my actions!!!

  2. more than enough says:

    any chance to boast about yourself, eh?
    and how could we forget, the efficiency of the oba vs the inefficiency of the plp. add in a dash of insults, and some anti bermudian sentiments, along with a generous helping of praise for the allmighty job creator, and we have the recipe for the majority of your posts.
    keep your self righteousness to yourself, look what happened to joanne for displaying hers.

  3. Kangoocar says:

    Difference is, I actually do the hiring and firing!! So it will not happen to me being I took a chance and started my own gig from nothing!! What have you done to help yourself??? Just because you don’t like my opinion, there is no reason to tack the Anti. Bermudian thing on me!! I actually do everything for Bermuda, first off I only have Bermudians employed, i do all my shopping here to support local biz, how about you?? Do you do the same or are you one of those that need a sky cap to take your luggage though customs??? And then continue to wonder why so many Bermudians are unemployed!! Now back to what I originally said too you, it actually would be of great benefit to you too educate yourself about business and profits before you make yourself look silly by spouting off about stuff you have no clue about!!!

  4. more than enough says:

    the autobiography continues…
    you remembered to hurl insults, and you tried to address the anti bermudian thing in your own way. you sang your own praise as one of the should be revered job creators. but you left out the political spin.
    a little too much wine, maybe?

    • Kangoocar says:

      Just as I thought, you blurt out stuff you have no clue about, when the facts are pointed out you avoid them and attack the messenger?? Sounds very similar to your plp!! Have a nice day!!

      • more than enough says:

        sounds familiar

      • more than enough says:

        furthermore my original post is right on point.
        kc’s need to hurl insults and drag the conversation through the political mire is indeed unnecessary. and his need to highlight his many achievements often steer the conversation off course.
        i’ll gladly get back on point, if we can discuss this as adults.

  5. Bermuda123 says:

    Do these posts have anything to do with the article or are they just arguments in public between 2 people?

    • more than enough says:

      do you have anything to say about the article?