| Credit crunch bites in financial services |
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| Monday, 31 March 2008 | |
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Page 3 of 3 Andrew Kail, UK Insurance leader, PricewaterhouseCoopers LLP, said that the general insurance sector was reporting that it felt reasonably well insulated from the direct effects of the credit crunch, with most players appearing to have minimal exposure to impaired investments. More generally, performance diverges between personal and commercial lines of business, with the latter seeing more pressure on rates, but the results show that many general insurers remain confident with their strategy and business model. Kail added that life insurers, however, were much more pessimistic. They reported a large fall in confidence as the continued investment and housing market uncertainties directly affect their business. “Faced with this uncertainty the life insurers are increasingly focused on cost reduction and reductions in capital expenditure and staff costs are likely despite them reporting a need to make further investment in the area of compliance and regulation,” Kail concluded. Securities trading Securities traders' optimism fell for the third successive quarter, as their volume of business and stream of revenues from fees, trading and investments both contracted at a strong rate again. After expanding their headcount for three years, this quarter’s fall in numbers employed suggests that securities traders are recognising the more difficult outlook. This is also seen in expectations that marketing budgets will be flat, and that the growth in IT spending will decelerate in the year to come, relative to last year. Fund management Fund managers were the only sector to report that they were more optimistic than in December and are continuing to expand their headcount aggressively. Business volumes grew for the second quarter running, which helped to lift profitability despite downward pressure on the value of incomes derived from trading, investments, fees and commissions. Next quarter firms expect to see profitability weaken, however, as they expect that volumes will be lower and that there will be continuing pressure on incomes. Robert Mellor, financial services tax leader at PricewaterhouseCoopers LLP, said that confidence in the fund management sector is on the up, despite recent equity market falls and unprecedented levels of volatility. He explained that revenue growth has emerged as the sector's greatest worry and said that a return to ‘normal conditions’ was not expected before year end. Mellor warned that respondents were increasingly concerned about the risk of asset write downs and said that a stronger focus on asset allocation would be a key feature of 2008. "Securities traders have seen a further decline in confidence this quarter. Business volumes and revenue streams are all down and the sector’s growing recognition that some of its businesses face a long road to recovery is reflected in staffing plans as we witness an increasing desire to match cost structures to the prevailing market conditions" Mellor concluded. Related articles
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