ey 2014 global insurance outlook

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2014 Global insurance outlook

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The global insurance industry is emerging from economic uncertainty. Many signs point to significant pockets of opportunity for top-line and bottom-line growth. This report contains: • Asia-Pacific insurance outlook • Canadian property-casualty insurance outlook • European insurance outlook • Latin America insurance outlook • US life-annuity insurance outlook • US property-casualty insurance outlook For more information on EY's insurance services, visit: http://www.ey.com/GL/en/Industries/Financial-Services/Insurance

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Page 1: EY 2014 Global Insurance Outlook

2014 Global insuranceoutlook

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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

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Executive summary

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The global insurance industry isemerging from economicuncertainty. Many signs point tosignificant pockets of opportunityfor top-line and bottom-line growth.

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Executive summary

► We explore opportunities and challenges confrontingglobal insurers in Asia Pacific, Canadian life and property-casualty, Europe, Latin America and US life-annuity andproperty-casualty markets.

► Complex challenges lay ahead, resulting in the prospectof slim profit margins in 2014 and fueling the need forgreater customer centricity across operations.

► Common issues include: a protracted low interest rateenvironment, slowly improving economy, and complianceand governance burdens from increasing regulation.

► Latin America offers substantial growth potential inspecific niches.

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Executive summary

► Rising individual wealth and aging populations in AsiaPacific are enticing product expansion and revenue.

► Europeans are focusing on keeping pace with regulation,simplifying operations, retooling investment strategies andinvesting in technologies to meet enhanced customerexpectations.

► US insurers look to leverage technology solutions toimprove underwriting, product development, claims anddistribution.

► In a highly competitive market, life insurers must deepenrelationships with customers to sustain profitable growth.

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Executive summary

► Technology continues to shape the industry, with legacysystems restraining some carriers’ ability to embrace bigdata analytics or meet the expectations for digitally savvycustomers.

► The need for strong digital operations and rich customerexperiences will be an ongoing strategic theme for theindustry for some time to come.

► Across the globe, the industry appears to be at thethreshold of much better times ahead, with opportunitiesfor growth and competitive advantage

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Asia PacificContinuous evolution

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The increasing individual wealthand aging population will createopportunities to introduce newproducts that protect consumers’hard-earned financial and physicalassets.

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Asia-Pacific outlookContinuous evolution

► Slow economic growth and low interest rates are primarychallenges, while rising individual wealth and agingpopulations create opportunities for new products.

► Property-casualty and health insurers may benefit fromthe new free-trade zone in Shanghai.

► Product development and distribution must be evaluatedas regulatory changes open the savings market to newentrants.

► Rigorous solvency requirements unfolding across theregion will strengthen the industry’s financial stability,while region-by-region differences will complicate marketopportunities.

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Asia-Pacific outlookContinuous evolution

► With 42% of the world’s internet users in Asia Pacific,empowered insurance consumers rely on the web toresearch and buy insurance products.

► Data analytics can improve competitive standing, andidentify areas to reduce expenses.

► Insurers are improving operational risk management toachieve higher levels of customer satisfaction.

► Asia-Pacific region’s share of the global middle class willnearly double, rising from 28% in 2009 to 54% in 2020,according to EY projections.

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Canadian lifeEncouraging signs, but will insurers seize opportunities?

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As the market builds on positiveeconomic factors, life insurancecompanies should take advantage of achanging environment and return to agrowth strategy. Investments intechnology and data analytics willgenerate rewards.

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Canadian life outlookEncouraging signs, but will insurers seize opportunities?

► Successful insurers will leverage operational flexibility toseize competitive opportunity.

► Despite more bullish external forces, life insurers mustcontinue to closely monitor interest rates, equity andhousing markets, consumer confidence and personalwealth, and employment.

► Renewed focus on asset management and wealthmanagement compels life insurers to develop moreinnovative, attractive products and improved profitability intax, sales and asset-liability management.

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Canadian life outlookEncouraging signs, but will insurers seize opportunities?

► Insurers must improve expense management andunderwriting through streamlined processes, stronger dataanalytics capabilities, outsourcing and more diligent focuson core operations.

► Understanding changing consumer demographicinformation is critical to guide product and distributionstrategies and expand growth opportunities.

► More stringent regulatory and accounting changes compelinsurers to improve their modeling capabilities, dataquality, data governance, and the level of detail providedby their reporting systems.

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Canadian property casualtyAdded impact of regulatory change

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Consolidation in the industry, mergers andacquisitions and regulatory changes remainhigh on the agenda for 2014. This iscreating a greater need for companies toimprove their bottom line through internalinvestments in technology and operationalefficiencies.

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Canadian property casualty outlookAdded impact of regulatory change

► Insurers are looking to develop new products that requirebroader, cost-effective industry solutions, such as cyberinsurance, sensor technology and nanotechnology.

► Those that best leverage technology and enhancedcustomer-centric processes will put themselves ahead.

► A complete solution that would include cloud-basedsystems for distribution, product development and claimsmanagement would put insurers on the right path.

► Making such investments would decrease operating costsand increase access to data and information across theorganization.

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Canadian property casualty outlookAdded impact of regulatory change

► The Canadian insurance industry was turned upside downby catastrophes in 2013 and is recognizing the need tobetter educate policyholders on differences in coverage.

► Regulatory and accounting changes continue to move at arapid pace, requiring greater investment in talent and timeto keep pace.

► Increased requirements will lead to more focus on dataquality, data governance and reporting systems.

► Insurers will need to ensure that their boards havesufficient understanding of the new guidance and theirroles.

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EuropeUnlock new opportunities, simplify existing operations

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Slow economic recovery is pressuringinsurers as they seek paths toprofitable growth — challengingexisting business models, investmentstrategies, product mix, businessprocesses and operating structures.

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Europe outlookUnlock new opportunities, simplify existing operations

► In recovering from recent economic turmoil, insurers mustsimplify their organizations and business models to createmore efficient operations that can seize emerging growthopportunities.

► Evolving regulations are becoming more stringent,affecting everything from capital requirements tocommission rates and customer care.

► In a prolonged low interest rate environment, insurersmust restructure and simplify their organizations to drivedown costs and take advantage of emerging growthopportunities.

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Europe outlookUnlock new opportunities, simplify existing operations

► While an aging population (a 4% increase in the numberof individuals 65 and older in the EU is forecast for 2014)and the personal and commercial non-life markets presentopportunities to increase sales, insurers must maintainfocus on profitability.

► Recognition that the low interest rate environment maypersist in 2014 and beyond increases the imperative forinsurers to take actions to reshape their investmentallocation strategy.

► A stronger digital presence is required in the improvingeconomy, with technologies addressing enhancedconsumer expectations as the top priority.

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Europe outlookUnlock new opportunities, simplify existing operations

► As growth conditions improve, insurers need to bedisciplined about their bottom-line profitability and capitalallocations.

► In spite of its relative immaturity, the cyber liability marketrepresents a meaningful opportunity for growth.

► Comprehensive, cross-functional enterprise data analyticscapabilities will improve customer targeting, productdesign, pricing, agency management, underwriting, claimsand reporting.

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Latin AmericaSignificant opportunities and challenges in a highly competitive environment

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Rich growth opportunities continue todraw insurers to launch operations orexpand their presence in LatinAmerican markets. Growth is wellabove the rate of most other globalregions.

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Latin America outlookSignificant opportunities and challenges in a highly competitive environment

► The pace of growth will continue, compelled by strongregional growth in small business and the modernizationof mature industries, which drive demand for insuranceprotection.

► Despite growing risks of inflation, substantial catastropheexposures and currency exchange rate volatility, theregion presents rich growth potential, especially in specificniches.

► Reduced margins mean growth must come from the topand bottom lines.

► Products and market segments with high growth potentialinclude personal lines and life insurance.

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Latin America outlookSignificant opportunities and challenges in a highly competitive environment

► As regulation evolves toward risk-based capitalapproaches, insurers will need more sophisticatedstructures for management, information and capitalsystems.

► To improve capital efficiency and prepare for digitalcompetition, insurers must overcome legacy insurancetechnology with new investments to enhance underwritingand innovate distribution.

► Data analytics and underwriting skills are in short supply,compelling the recruitment of talent from universities andmore training and development.

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US life annuitySignificant opportunities and challenges in a highly competitive environment

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In highly competitive marketconditions, insurers must deepen theirrelationships with customers, which isvital to retaining this book of businessand maintaining sustained, profitablegrowth.

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US life annuity outlookSignificant opportunities and challenges in a highly competitive environment

► As stagnant sales and low investment yields constrain profits,insurers must streamline operational models and coststructures, resolving legacy system challenges to achievelong-term operational excellence and profitability.

► Enterprise data excellence is a key objective, furtheringexisting data transformation programs and resulting inimproved data quality, access, integration, security andgovernance.

► Having rebuilt their capital structure to weather the post-financial crisis, insurers can enhance shareholder returns byimproving the yield on investments in products and operationsand restructuring capital through captives and debt.

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US life annuity outlookSignificant opportunities and challenges in a highly competitive environment

► Despite the uncertain implementation dates of manycomplex regulations, insurers must improve their governancestructures in anticipation.

► As life insurers confront multiple and often conflictingregulatory requirements, they must enhance their capacity tounderstand and communicate these changes to decision-makers.

► Investments in people, processes, methodologies andtechnology will enable insurers to address regulatoryrequirements for risk analysis, distribution oversight andinformation transparency.

► Balancing risk and reward in asset portfolios will beessential.

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

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In a continuing low interest rateenvironment, insurers need to increaseinternal investment in technology andoperating capabilities. This presents a rareopportunity for transformation that willguide meaningful improvements throughtheir organizations.

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

► Enterprise data excellence is a key objective, resulting inimproved data quality, access, integration, security andgovernance.

► In the aftermath of the recession, there is a need torationalize complex product portfolios, simplify delivery andprocessing, and reduce frictional costs.

► The still-fragile economic recovery and the competitivedynamics in certain market segments indicate growth is likelyto come from pockets of opportunity — global, geographic,product and demographic.

► Robust economic capital modeling and enterprise riskmanagement capabilities are required to assess evolvingliabilities, capital structure and business plans.

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

► Insurers are in various stages of implementing acustomer-centric business model that compels afundamental realignment and integration of internaltechnology to reach consumers.

► A greater emphasis on risk and capital managementexists in the industry, driven by unanticipated losses onboth the asset and liability sides of the balance sheet.

► Enhanced record keeping and reporting capabilities arenecessary to stay ahead of escalating regulatory demandsfor information from more jurisdictions.

► Improved governance and risk management systems areessential and should be a clear business imperative.

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