EY 2014 Global Insurance Outlook

Contents
► Executive summary
► Asia-Pacific insurance outlook
► Canadian life insurance outlook
► Canadian property-casualty insurance outlook
► European insurance outlook
► Latin America insurance outlook
► US life-annuity insurance outlook
► US property-casualty insurance outlook
2014 Global insurance outlook

Executive summary

The global insurance industry is
emerging from economic
uncertainty. Many signs point to
significant pockets of opportunity
for top-line and bottom-line growth.

Executive summary
► We explore opportunities and challenges confronting
global insurers in Asia Pacific, Canadian life and property-
casualty, Europe, Latin America and US life-annuity and
property-casualty markets.
► Complex challenges lay ahead, resulting in the prospect
of slim profit margins in 2014 and fueling the need for
greater customer centricity across operations.
► Common issues include: a protracted low interest rate
environment, slowly improving economy, and compliance
and governance burdens from increasing regulation.
► Latin America offers substantial growth potential in
specific niches.

Executive summary
► Rising individual wealth and aging populations in Asia
Pacific are enticing product expansion and revenue.
► Europeans are focusing on keeping pace with regulation,
simplifying operations, retooling investment strategies and
investing in technologies to meet enhanced customer
expectations.
► US insurers look to leverage technology solutions to
improve underwriting, product development, claims and
distribution.
► In a highly competitive market, life insurers must deepen
relationships with customers to sustain profitable growth.

Executive summary
► Technology continues to shape the industry, with legacy
systems restraining some carriers’ ability to embrace big
data analytics or meet the expectations for digitally savvy
customers.
► The need for strong digital operations and rich customer
experiences will be an ongoing strategic theme for the
industry for some time to come.
► Across the globe, the industry appears to be at the
threshold of much better times ahead, with opportunities
for growth and competitive advantage

Asia Pacific
Continuous evolution

The increasing individual wealth
and aging population will create
opportunities to introduce new
products that protect consumers’
hard-earned financial and physical
assets.

Asia-Pacific outlook
► Slow economic growth and low interest rates are primary
challenges, while rising individual wealth and aging
populations create opportunities for new products.
► Property-casualty and health insurers may benefit from
the new free-trade zone in Shanghai.
► Product development and distribution must be evaluated
as regulatory changes open the savings market to new
entrants.
► Rigorous solvency requirements unfolding across the
region will strengthen the industry’s financial stability,
while region-by-region differences will complicate market
opportunities.

Asia-Pacific outlook
► With 42% of the world’s internet users in Asia Pacific,
empowered insurance consumers rely on the web to
research and buy insurance products.
► Data analytics can improve competitive standing, and
identify areas to reduce expenses.
► Insurers are improving operational risk management to
achieve higher levels of customer satisfaction.
► Asia-Pacific region’s share of the global middle class will
nearly double, rising from 28% in 2009 to 54% in 2020,
according to EY projections.

Canadian life
Encouraging signs, but will insurers seize opportunities?

As the market builds on positive
economic factors, life insurance
companies should take advantage of a
changing environment and return to a
growth strategy. Investments in
technology and data analytics will
generate rewards.

Canadian life outlook
► Successful insurers will leverage operational flexibility to
seize competitive opportunity.
► Despite more bullish external forces, life insurers must
continue to closely monitor interest rates, equity and
housing markets, consumer confidence and personal
wealth, and employment.
► Renewed focus on asset management and wealth
management compels life insurers to develop more
innovative, attractive products and improved profitability in
tax, sales and asset-liability management.

Canadian life outlook
► Insurers must improve expense management and
underwriting through streamlined processes, stronger data
analytics capabilities, outsourcing and more diligent focus
on core operations.
► Understanding changing consumer demographic
information is critical to guide product and distribution
strategies and expand growth opportunities.
► More stringent regulatory and accounting changes compel
insurers to improve their modeling capabilities, data
quality, data governance, and the level of detail provided
by their reporting systems.

Canadian property casualty
Added impact of regulatory change

Consolidation in the industry, mergers and
acquisitions and regulatory changes remain
high on the agenda for 2014. This is
creating a greater need for companies to
improve their bottom line through internal
investments in technology and operational
efficiencies.

Canadian property casualty outlook
► Insurers are looking to develop new products that require
broader, cost-effective industry solutions, such as cyber
insurance, sensor technology and nanotechnology.
► Those that best leverage technology and enhanced
customer-centric processes will put themselves ahead.
► A complete solution that would include cloud-based
systems for distribution, product development and claims
management would put insurers on the right path.
► Making such investments would decrease operating costs
and increase access to data and information across the
organization.

Canadian property casualty outlook
► The Canadian insurance industry was turned upside down
by catastrophes in 2013 and is recognizing the need to
better educate policyholders on differences in coverage.
► Regulatory and accounting changes continue to move at a
rapid pace, requiring greater investment in talent and time
to keep pace.
► Increased requirements will lead to more focus on data
quality, data governance and reporting systems.
► Insurers will need to ensure that their boards have
sufficient understanding of the new guidance and their
roles.

Europe
Unlock new opportunities, simplify existing operations

Slow economic recovery is pressuring
insurers as they seek paths to
profitable growth — challenging
existing business models, investment
strategies, product mix, business
processes and operating structures.

Europe outlook
► In recovering from recent economic turmoil, insurers must
simplify their organizations and business models to create
more efficient operations that can seize emerging growth
opportunities.
► Evolving regulations are becoming more stringent,
affecting everything from capital requirements to
commission rates and customer care.
► In a prolonged low interest rate environment, insurers
must restructure and simplify their organizations to drive
down costs and take advantage of emerging growth
opportunities.

Europe outlook
► While an aging population (a 4% increase in the number
of individuals 65 and older in the EU is forecast for 2014)
and the personal and commercial non-life markets present
opportunities to increase sales, insurers must maintain
focus on profitability.
► Recognition that the low interest rate environment may
persist in 2014 and beyond increases the imperative for
insurers to take actions to reshape their investment
allocation strategy.
► A stronger digital presence is required in the improving
economy, with technologies addressing enhanced
consumer expectations as the top priority.

Europe outlook
► As growth conditions improve, insurers need to be
disciplined about their bottom-line profitability and capital
allocations.
► In spite of its relative immaturity, the cyber liability market
represents a meaningful opportunity for growth.
► Comprehensive, cross-functional enterprise data analytics
capabilities will improve customer targeting, product
design, pricing, agency management, underwriting, claims
and reporting.

Latin America
Significant opportunities and challenges in a highly competitive environment

Rich growth opportunities continue to
draw insurers to launch operations or
expand their presence in Latin
American markets. Growth is well
above the rate of most other global
regions.

Latin America outlook
► The pace of growth will continue, compelled by strong
regional growth in small business and the modernization
of mature industries, which drive demand for insurance
protection.
► Despite growing risks of inflation, substantial catastrophe
exposures and currency exchange rate volatility, the
region presents rich growth potential, especially in specific
niches.
► Reduced margins mean growth must come from the top
and bottom lines.
► Products and market segments with high growth potential
include personal lines and life insurance.

Latin America outlook
► As regulation evolves toward risk-based capital
approaches, insurers will need more sophisticated
structures for management, information and capital
systems.
► To improve capital efficiency and prepare for digital
competition, insurers must overcome legacy insurance
technology with new investments to enhance underwriting
and innovate distribution.
► Data analytics and underwriting skills are in short supply,
compelling the recruitment of talent from universities and
more training and development.

US life annuity

In highly competitive market
conditions, insurers must deepen their
relationships with customers, which is
vital to retaining this book of business
and maintaining sustained, profitable
growth.

US life annuity outlook
► As stagnant sales and low investment yields constrain profits,
insurers must streamline operational models and cost
structures, resolving legacy system challenges to achieve
long-term operational excellence and profitability.
► Enterprise data excellence is a key objective, furthering
existing data transformation programs and resulting in
improved data quality, access, integration, security and
governance.
► Having rebuilt their capital structure to weather the post-
financial crisis, insurers can enhance shareholder returns by
improving the yield on investments in products and operations
and restructuring capital through captives and debt.

US life annuity outlook
► Despite the uncertain implementation dates of many
complex regulations, insurers must improve their governance
structures in anticipation.
► As life insurers confront multiple and often conflicting
regulatory requirements, they must enhance their capacity to
understand and communicate these changes to decision-
makers.
► Investments in people, processes, methodologies and
technology will enable insurers to address regulatory
requirements for risk analysis, distribution oversight and
information transparency.
► Balancing risk and reward in asset portfolios will be
essential.

US property casualty
Focus on margin protection and stronger operating fundamentals to enhance performance

In a continuing low interest rate
environment, insurers need to increase
internal investment in technology and
operating capabilities. This presents a rare
opportunity for transformation that will
guide meaningful improvements through
their organizations.

US property casualty outlook
► Enterprise data excellence is a key objective, resulting in
improved data quality, access, integration, security and
governance.
► In the aftermath of the recession, there is a need to
rationalize complex product portfolios, simplify delivery and
processing, and reduce frictional costs.
► The still-fragile economic recovery and the competitive
dynamics in certain market segments indicate growth is likely
to come from pockets of opportunity — global, geographic,
product and demographic.
► Robust economic capital modeling and enterprise risk
management capabilities are required to assess evolving
liabilities, capital structure and business plans.

US property casualty outlook
► Insurers are in various stages of implementing a
customer-centric business model that compels a
fundamental realignment and integration of internal
technology to reach consumers.
► A greater emphasis on risk and capital management
exists in the industry, driven by unanticipated losses on
both the asset and liability sides of the balance sheet.
► Enhanced record keeping and reporting capabilities are
necessary to stay ahead of escalating regulatory demands
for information from more jurisdictions.
► Improved governance and risk management systems are
essential and should be a clear business imperative.

Ernst & Young
Assurance | Tax | Transactions | Advisory
About Ernst & Young
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© 2014 Ernst & Young LLP.
All Rights Reserved.
1405-1247115 NY
EYG no: EG0184
ED none
This material has been prepared for general informational
purposes only and is not intended to be relied upon as
accounting, tax, or other professional advice. Please refer to
your advisors for specific advice.

EY 2014 Global Insurance Outlook

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