Insurers face difficult choices
European life and non-life insurers face important strategic decisions in 2012.Volatility and deterioration in macroeconomic and political factors are disruptingbalance sheets, consumers and investors. Unfolding regulatory initiatives willhave a pervasive infl uence on insurer operations. A mature insurance marketacross much of the landscape continues to make growth diffi cult to achieve.And consumer needs and expectations are rapidly changing. These forces arecombining to create considerable challenges for insurers seeking to improveboth top- and bottom-line performance. Those companies that have a deepunderstanding of these challenges, and respond with strategic solutions, willoutperform their peers.
Economic developments in Europe create signifi cant risks to insurer balancesheets and may result in a prolonged and stagnant organic growth environment.Fiscal imbalances that guided the downgrade of sovereign debt in weakerEuropean countries have adversely affected the balance sheets of numerousEuropean insurers and reinsurers. Possible sovereign defaults, which mayspread to other countries and sectors, could further reduce asset portfolios. Asudden spike in interest rates would further destabilize insurer portfolios andloss reserves, challenging the ability of insurers to remain competitive in themarketplace. Finally, wider recessionary conditions could reduce consumer andbusiness demand for insurance products and services, adding to the restrictionsin top-line growth potential.
Proposed regulatory changes transforming solvency and accounting standardswill affect insurers from both a capital management and operational standpoint.For instance, insurers will be compelled to rethink their business and productmix in light of the anticipated capital requirements. These looming regulatorychallenges will require insurers to support new reporting requirements withimproved data quality and possibly with overhauled fi nancial systems. Addinganother dimension to these regulatory pressures are customer protectionconcerns from the country level, which may further induce insurers to altertheir products and distribution.