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P&C Insurer CFOs See Rates Stabilizing

Rates strengthen but most insurers believe reserve redundancies will continue for at least a year, while technology expenses were identified as a top challenge.

Property and casualty CFOs in North America see rates rising but believe reserve redundancies will last for at least another year, while technology expenses were identified as the greatest cost management challenge, according to the latest North American Property & Casualty CFO Survey by Towers Watson, a risk management and human resources consulting firm.

Three-quarters of CFOs said the property market was hardening, hard or at the top of the cycle while two-thirds indicated that the casualty market was hardening, hard or at the top of the cycle. According to Bruce Fell, managing director for risk consulting and software at Towers Watson, the last few years of a softer market has hurt insurance profitability.

About 51% of CFOs cited technology as the greatest expense and cost management challenge.

“The turn of the cycle frees up insurers,” says Fell in a release. “They should use the opportunity to focus on issues, such as developing cost-efficient technology solutions, that can make them more competitive in the long run and offer them some cushion when the cycle starts to soften again.”

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About 15% and 10% said the property and casualty markets, respectfully, are softening. Almost all of the respondent, 98%, believe reserve redundancies still exist. 81% expect those redundancies to continue for another year while 42% think they will last for the next two years.

Fell adds, “better investment yields coupled with the perception of relatively healthy financials may eventually lead to eroding pricing discipline. Further, the recent influx of alternative capital into the catastrophe reinsurance market could place downward pressure on reinsurance rates.”

Profitability and rate levels were cited as the principal drivers by CFOs who saw hardening in the property market. Capital-related drivers like current capital base and capital entering and exiting were cited by CFOs who saw a soft property market. Financial performance and rate levels were cited at main triggers by CFOs with both hardening and softening perspectives.

Interest rates are the biggest economic and market environment concern, said 81% of CFOs. About 44% said natural catastrophes and 34% said inadequate rate levels were the biggest concerns.

Forty-six percent are realigning their investment portfolio in response to today’s economic and market environment challenges, while 37% are introducing new products or expanding to new markets.

Leading external challenge to achieve growth, profit and risk objectives are investment returns, indicated 93% of participants. Economic growth and competitive environment were cited by 44% and 34% of respondents respectfully.

Internal challenges include human capital, data availability, regulatory restrictions and technology limitations.

Zarna Patel is a staff writer for InformationWeek's Financial Services brands, which include Bank Systems & Technology, Insurance & Technology and Wall Street & Technology. She received her B.A. in English and journalism from Rutgers University College of Arts and Sciences in ... View Full Bio

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