UK general insurers are reporting flat profitability and falling buyer sentiment, according to a survey by PricewaterhouseCoopers (PWC) and the Confederation of British Industry.

The Financial Services Survey says general insurers’ business volumes and income values have fallen, offsetting a rise in commissions, fees and premiums.

Sentiment fell at the fastest pace since March 2003 and investment intentions for the year ahead were subdued.

The largest number of respondents in two years say personal lines have declined.

PWC Insurance Partner James McPherson says the falls are not encouraging as general insurers’ performance often reflects the health of the broader economy.

“Despite this fall in confidence, general insurers still expect revenues to pick up during the coming quarter,” he said.

“With investment income under growing pressure, insurers are hoping that price increases following 2011’s motor and catastrophe losses will help them achieve stronger rates and alleviate pressure on underwriting profits.”

The total value of claims has fallen for the first time in two years, reflecting a renewed focus on fraud reduction, the report says.

General insurers expect compliance spending to increase in the next year but are less concerned than other industry sectors about regulation. By contrast, the availability of experienced staff is seen as an increasing limitation on business development, the report says.

For life insurers, both business volumes and premium, fee and commission income rose. But profitability fell for the first time since December 2009 because of rising costs and reduced pricing power.

“Life insurance sentiment has declined slightly, reflecting growing uncertainty in the sector over the long-term impact of the Retail Distribution Review and pension auto-enrolment,” Mr McPherson said.

“Despite this, the sector has had another good quarter with a strong majority of firms reporting higher volumes of business.”

Life companies are also increasing staffing and marketing expenditure, pushing up total operating costs. This places pressure on life insurers’ profitability despite the strong volumes of business, the report says.

Insurance brokers reported that profitability fell “unexpectedly” over the previous three months, as business volumes were flat, income values fell and average costs continued to rise.

The survey was conducted between May 18 and June 7 and 108 financial services companies responded.

A total of 59% of respondents saw business volumes rise in the quarter to June and 21% reported a fall.