NEW YORK, Jan. 23 /PRNewswire/ -- Margin compression and continued pricing erosion will put increasing pressure on the insurance industry to achieve top line objectives in 2008, according to Ernst & Young's Global Insurance Center. Companies need to make significant changes and seek alternative growth strategies if they are to remain competitive and survive in the challenging and complex business environment that lies ahead.

"With pricing becoming increasingly softer, leadership is going to become all the more important in 2008," said Peter R. Porrino, Ernst & Young's Global Director of Insurance. "Today's leaders must steer clear of price warfare and, instead, strive to uncover new business opportunities, make their organizations ever-more efficient and maximize their risk management operations."

Ernst & Young identified six key issues in 2008 that will influence the property/casualty industry:

    1. Striving for Growth: In spite of another year of great earnings,
       insurers will be challenged to sustain growth in 2008. EY expects
       margin compression to accelerate over the next 12 months. However,
       stronger balance sheets and an accumulation of capital will enable
       insurers to increase share buybacks, boost dividends, enter emerging
       markets and accelerate merger and acquisition activity. With these
       prevailing conditions, consolidation is more likely.

    2. Operational Transformation: The search for growth and profitability
       is driving companies to focus on better business alignment and
       expense control. In 2008, insurers will also take a harder look at
       evaluating outsourcing and offshoring, particularly for back-office
       functions and customer-facing business processes. In addition,
       developing a formal strategic cost management program will be a
       critical facet of operational transformation.

    3. Catastrophe Solutions: Impending soft market conditions will test
       each company's ability to maintain underwriting discipline and
       achieve reasonable profits. EY believes that insurers should continue
       to invest in their ability to understand catastrophe risk and improve
       underwriting performance. This involves an investment in resources,
       technology and operational procedures. Only those who can find
       solutions within this fundamental framework will stay the course.

    4. Financial Events: Over the last five years, insurers have increased
       their investments in alternative asset classes which has led to
       greater credit risk exposure. Now is the time to take action and
       focus on building risk infrastructure and creating more transparency
       commensurate with the nature of these important investments.
       Organizations that embrace the people, systems and processes to
       accurately comprehend and manage the risks of these asset classes may
       gain a competitive advantage.

    5. Solvency II (SII): The implementation of SII may pose a sizeable
       challenge with far reaching implications for insurers. Besides the
       extensive improvements to systems, processes and data SII calls for,
       the convergence of accounting, risk and actuarial information may
       also pressure traditional actuarial practitioners to develop more
       sophisticated financial and risk management methodologies and more
       efficient deployment of capital.

    6. International Financial Reporting Standards (IFRS): Regardless of the
       implementation date being delayed, the time for IFRS is now.
       Companies need to develop a plan that includes steps to assess the
       impact of the proposals on their financial statements, educate key
       employees and constituents, and evaluate the readiness of their
       organization for implementation.

"With market challenges only intensifying, there is a particularly fertile window of opportunity for companies to deploy capital and differentiate themselves through innovation," said Christopher J. McShea, Principal, Insurance Advisory Services, Ernst & Young LLP. "Challenges abound, and many will require new ways of thinking. Leaders who recognize the important changes in this industry, from tighter margins to new compliance and regulatory pressures, and devise inventive, cost-effective solutions for reacting to them, will be laying the groundwork for success in years to come."

About the Ernst & Young Global Insurance Center

The Global Insurance Center is the hub of the Ernst & Young network of professionals dedicated to serving the global insurance market. It connects our people around the globe, sharing information and experience on current and emerging industry issues. Our goal is to help global insurance clients address their complex issues by drawing on a broad range of services including: assurance, tax, actuarial and risk management, transaction advisory services, and technology advisory to support these services.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. For more information, please visit www.ey.com.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

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Source: Ernst & Young

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