For companies looking to stand out from the pack, E&Y said insurers will have to operate effectively in a sluggish U.S. economy. The economy, E&Y noted, is leading to low investment yields and reduced net premiums. E&Y said the compressed operating margins may lead insurers to "delay needed or advantageous investments in substantive infrastructure improvements in underwriting, marketing and customer service."

E&Y said companies that are making astute investments in these areas despite the economy have achieved lower combined ratios and are better prepared for the eventual return of a growth economy.

Insurers must also gain a firm grasp on pricing trends through a more thorough understanding of the underlying factors. E&Y said, "Sophisticated insurers that understand the various factors pointing to a turn in the underwriting cycle go beyond pricing tactics to position their companies advantageously throughout the cycle. Entering and exiting market segments and redeploying capital, where possible, can lead to wder profit margins and stronger competitive positions."

Effectively managing excess capital will help define long-term winners in 2011, E&Y said. "Long-term winners will be the insurers with a holistic approach to capital management," E&Y noted. "As the slower-growth environment continues into 2011, insurers must look for ways to maximize capital returns and find options that balance these returns with the risks they present."

Some insurers are turning to acquisitions—which increased in frequency in 2010 compared to 2009. M&A should continue "at a moderate pace" in 2011, E&Y said.

Other insurers are deploying excess capital into technology and infrastructure improvements, E&Y noted.

E&Y recommended that insurers make investments in next-generation predictive analytics that "identify target clients, profitable markets and superior distribution partners." Such technology, E&Y said, has been effectively employed in personal lines but is less mature in commercial lines. To be effective in this area, E&Y said senior managers must make a commitment to gain literacy in this discipline "or ill-designed applications will serve to worsen the soft market."

Anticipating and adapting to accounting and regulatory changes will also be important for insurers in 2011, E&Y said. Proposed accounting standards put forth by the Financial Accounting Standards Board (FASB) have "implications well beyond financial reporting and investor relations," E&Y said, and could fundamentally alter how insurers design and price new products.

Meanwhile, regulatory changes in both the U.S. and Europe will have many consequences for the industry, some of which are as yet unknown.

E&Y senior executives should "assess a broad range of business strategies to mitigate the challenges" posed by accounting changes and should engage regulators to shape regulatory changes, rather than simply reacting to them.