Insurers refocus strategy to reduce capital intensity

Strategically, insurers are reducing the capital intensity of the business by focussing on health, protection, unit-linked, asset management and short-tail property/casualty (P&C) lines, according to Morgan Stanley.

Insurers are not relying on anticipating macro tailwinds, but instead are developing product initiatives and reducing the capital intensity of the business, participants in the European financials conference hosted by Morgan Stanley suggested.

As recent M&A transactions have shown, for example, Standard Life Aberdeen's intention to sell its life business to Phoenix and Prudential's sale of £12 billion of annuities to Rothesay, insurers continue to explore ways to improve capital efficiency, according to the investment bank. Management teams consistently spoke of a focus on growing in areas such as health, protection, unit-linked and short-tail P&C.

In time, analysts believe there are likely to be more back-book transactions – as insurers try to accelerate the transformation of the balance sheet. To date, these transactions have been focussed on the UK and (arguably) the Netherlands; however, Morgan Stanley analysts are watching the intended sale of Generali Leben in Germany with interest, as this could signal a broader trend in continental Europe.

Technology remains a key area of debate with insurers focused on harvesting the benefits to improve underwriting, efficiency and customer engagement, the analysts noted.

Morgan Stanley hosted a panel on connected insurance which showed that a combination of data from sensors augmented with other data and artificial intelligence (AI) is going to become increasingly important. Several insurers highlighted increasing levels of automation in the underwriting of retail lines. Morgan Stanley analysts believe the winners are likely to be those incumbent insurers that adapt quickly rather than disruptors.

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