Life insurers are adjusting the way they calculate capital requirements a new study from New York-based Towers Watson finds. The report, Evolving Capital Management Practices, queried 30 CFOs and found they expect to make greater use of economic capital when determining capital requirements.
“Capital management is becoming a top priority for many companies,” Jack Gibson, leader of Towers Watson’s life insurance consulting practice in the Americas said in a statement. “That more than three-quarters of CFOs (77%) said that capital management practices — primarily determination of capital requirements, monitoring of capital position and management of capital levels — are receiving greater attention at their companies than they were in January 2008, speaks volumes to where they are focused.”
The survey says the shift is largely related to the financial crisis.
“The global financial crisis and recession have put pressure on life insurers’ capital positions,” said Todd Erkis, Towers Watson director. “The amount of capital required has increased, while life insurers’ available capital has decreased. At the same time, the options available to raise capital have become more limited and more costly.”
However, CFOs were generally optimistic about the economy moving forward, with most respondents indicating they think that GAAP net revenue and GAAP net income will increase at least 4%, compared to the same quarter last year. They were also bullish on premium growth with 54% of respondents predicted growth in new life and annuity premiums over the same quarter last year; 25% expected premiums to stay the same, and 21% predicted a decrease.
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