Outlook for general insurance “remains uncertain”

The outlook for the general insurance sector is gloomy despite the fastest growth in business in five quarters, according to the latest CBI/PwC Financial Services Survey, released today (Monday).

The growth was offset by a sharp fall in net interest, investment and trading income and no change in spreads, meaning that profitability overall fell on the previous quarter. But a rise in the latter is expected for the next three months.

Optimism among insurance brokers rose at its fastest rate in a year, as they reported further business growth. Coupled with a strong rise in income values and a sharp fall in average costs, this led to robust growth in profitability. But the latter is set to contract modestly in the next three months, with incomes expected to fall and business volumes predicted to be broadly flat.

PwC’s London market insurance leader Gavin Phillips said: “Despite reporting the fastest growth in business volumes in five quarters, the outlook for the general insurance sector remains uncertain. The unfavourable pricing outlook and intensity of competition is still causing insurers concern. The value of claims has risen for the third quarter running and investment returns have continued to decline, adding further pressure to insurer’s profitability. However, insurers are one of the few sectors continuing to hire and numbers employed have increased for the second quarter running.”

In the financial services sector as a whole, activity grew strongly in the UK financial services sector for the second quarter in a row, in the three months to December.

However, profitability did not increase as fast as expected, growing at the slowest pace for 18 months, and numbers employed in the sector fell at the fastest pace for 17 years.