While the report did not reveal how many CEOs were surveyed, or what proportion came from the property-casualty insurance industry, much of the news delivered at a press briefing revealing the reports findings suggested that p-c insurers have a more dismal near-term future than their counterparts in the broader financial services industry.

While highlighting merger-driven growth plans and outlining some bright prospects for other participants in the financial services sector, the experts commented that “growth will be challenging in p-c insurance, where top-line revenues are likely to stagnate.”

Kicking off the briefing, Mercer Oliver Wyman Director Nick Studer said that “earnings growth is the primary driver of market value” for publicly traded financial services firmscommercial and retail banks, investment banks, insurers, and diversified financial firms taken together. He reported that market value grew 19 percent for financial services firms globally to $7.5 trillion in 2004, noting that earnings growth of 24 percent was the key driver behind the leap in market value.

Offsetting earnings growth, price-to-earnings ratios declined somewhat, he said, explaining why market value growth lagged earnings growth. The P/E ratio declines, he said, reflect the fact that the investment markets believe that financial services firms will be hard pressed to tap into long-term earning growth going forward. “Theres no room for any complacency,” he said.

Mr. Studers comments were based on his firms findings from two separate analysesone based on shareholder performance indices for 400 financial services firms and another based on the CEO survey.

Using a proprietary tool called a “Shareholder Performance Index”which is a risk-adjusted measure of shareholder returnsthe consulting group reported that top-line revenue growth is the most powerful lever of earnings growth for financial services firms, with revenue sprinters posting much higher SPIs than cost-cutters.

While firms with both high revenue growth and cost efficiencies reported the best SPIsan average of 164high-growth/low-efficiency firms left low-growth/high-efficiency firms in the dust. High-growth/low-efficiency firms had an average SPI of 150, while low-growth/high-efficiency firms averaged an SPI of 58. (SPIs shown in the report for the top 100 of the 400 individual firms studied ranged from a low of 111 to a high of 502.)

According to the second analysisthe CEO pollexecutives are quite in tune with how the markets respond. Not only are 95 percent making organic revenue growth a top priority, but 40 percent expect a major merger, and 47 percent said that involvement in smaller transactions will be a big issue for them (up from 20 percent last year).

“Weve seen that a lot of costs have already been taken out of the [financial services] industry,” Mr. Studer said, explaining the need for executives to pursue both organic and acquisition-driven growth strategies. While cost cutting was still among the strategic priorities for this year, it was typically ranked much lower down on their lists than its been in years past, he noted.

Flag: How Did They Grow?

Head: Progressive Shines Among P-C Sprinters

Mercer Oliver Wyman consultants found three emerging themes among financial services firms that have rising shareholder performance rankings, including one property-casualty insurerMayfield Village, Ohio-based Progressive.

Many successfully growing firms have:

Entered high-growth markets.

Focused on distribution effectiveness to attract, expand and retain customer relationships.

Emphasized product and service innovation to achieve organic growth.

Progressive got a tip of the hat from the consultants for its presence among the last two categories of growersthe distribution innovators and the product and service innovators. Not only has it focused on improving customer experiences by delivering a one-stop-shop claims process, but it has invested in technology to improve service levels for agencies, the consultants said.

In terms of the consultants Shareholder Performance Indexa proprietary risk-adjusted measure of shareholder returnsProgressive got the highest SPI of any large p-c insurer, coming in with a 216 SPI. With that measure, Mercer Oliver Wyman consultants ranked the insurer 26th on a top-50 list of large financial services firms (those with market capitalization above $10 billion).

Progressives star qualities also shine brightly on NUs first two Data Insights reports, putting the insurer among those with the 20-lowest combined ratios and the 20-lowest expense ratios. (For this weeks report on insurer expenses, see page 14.)

Eighty-sevenor 22 percentof the 400 financial services studied for Mercer Oliver Wyman's SPI analysis are categorized as insurance providers, with an average SPI of 88. There were 24 pure p-c insurers, nine reinsurers, and 17 classified as mixed insurance, with pure life and pure health insurers making up the remainder.

(For information on how some other insurers did on Mercer Oliver Wymans SPI analysis, see NU Online News Service, “P-C Forecast Poor As Execs Ponder Mergers,” Jan. 27.)

Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.