Canadian Underwriter

Precarious Market Forecasts Proving To Be True

March 25, 2010   by Daryl-Lynn Carlson

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The insurance industry is facing increased pressure to achieve the levels of profitability it has enjoyed in previous years.

And coupled with pressing economic forces, there’s been greater scrutiny of Chief Executive Officers, eight of whom have been relieved of their duties at leading insurers in the U.S. inside of just one year.

The increasingly precarious market was forecast at the outset of the year by industry watchers at Ernst & Young. In its prognosis of the U.S. market, the consultancy warned that margin compression and continued pricing erosion will put increasing pressure on the insurance industry to achieve top line objectives in 2008.

It suggested companies would need to make significant changes and seek alternative growth strategies if they are to remain competitive and survive a more challenging and complex business environment.

“With pricing becoming increasingly softer, leadership is going to become all the more important in 2008,” said Peter R. Porrino, Ernst & Young’s Global Director of Insurance. “Today’s leaders must steer clear of price warfare and, instead, strive to uncover new business opportunities, make their organizations ever-more efficient and maximize their risk management operations.”

Last month Bloomberg News compiled data which showed that indeed, leaders at many large insurers were being dumped or forced to step down due to poor performance. Some were impacted by the sub-prime market implosion in the U.S. although that hasn’t been the sole factor in leadership departures.

Bloomberg pointed out that insurance stocks have been performing almost as badly as securities firms this year, with the Standard & Poor’s Insurance Index down 20 per cent and the Amex Securities Broker/Dealer Index dipping 22 per cent.

Likewise, seven of the 35 companies on the Amex index replaced their CEOs.

The trend prompted Beverly Behan, managing director of the board-effectiveness practice at the Philadelphia-based consulting firm, Hay Group, to remark, “The days of the imperial CEO have long gone. We’ve seen unprecedented levels of scrutiny on boards and on CEO accountability.”

While Canada’s Ernst & Young insurance analysts haven’t released a market update, the UK’s Institute of Chartered Accountants in England and Wales recently forecast receding confidence in the property, finance, banking and insurance sectors.

It recognized financial markets worldwide are in a global decline and the UK market, including the insurance sector, is by no means immune.

This story was originally published by Canadian Insurance Top Broker.