Watson Wyatt’s view is based on what it termed “significant
change in the financial reporting environment”, driven by the
movements toward an international reporting standard and toward
principles-based approaches to setting reserves and capital for US
life insurers.
The consultancy pointed out that at the same time regulations
are changing, risk measurement and management demands are becoming
more complex and, indeed, some insurers may find that their
existing systems are a source of risk that needs attention.
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“Increasingly, there is a competitive advantage for executives who
are able to undertake a sophisticated analysis of their company’s
performance and explain it to stakeholders,” said Buck. “This
ability also can help increase risk-adjusted returns and identify
trapped capital that has been dragging down performance. Many
legacy systems are not able to provide this kind of insight.”
However, he stressed that enhancing analytical capabilities
requires more than investment in technology and that insurers will
also need to invest in training their staff to fulfil the new
reporting requirements and use the latest methodologies. All of
this, he said, means higher costs.
“To be successful in this environment, companies need to deal in
high volumes,” Buck said. “The industry is searching for growth.
One likely result of this will be more consolidation among life
insurers in 2008. Many large companies are in a strong financial
position and will continue to seek growth opportunities through
acquisitions. Especially considering the weakness of the US dollar,
it would not be surprising to see more foreign insurers exploring
the US market.”
