Australian insurers have identified the cost of capital as a key concern over the next three years, a KPMG survey has revealed.

The global survey into long-term capital, risk and regulatory challenges for insurers was released last week. Undertaken in conjunction with the Economist Intelligence Unit, it polled 392 executives in 47 countries.

The research examines insurance executives’ key expected areas of focus through to 2012, with particular emphasis on risk and capital management functions.

While 46% of the global insurers cited increased regulation as the main barrier to growth, a bigger concern locally is scarcity of capital and its high cost (58%).

“Raising capital for bolt-on acquisitions might be fine, but if you’re raising huge money it is likely to cost you quite a bit more in either equity or debt than it would have a couple of years ago,” KPMG’s local Head of Insurance Practice Brian Greig told insuranceNEWS.com.au.

Australian respondents also cited new sources of competition as another potential impediment to growth, reflecting a bevy of new market entrants.

Despite those concerns, the survey confirms Australian insurers have endured the downturn in good shape compared to their global counterparts.

Half of the Australian respondents said their business performed ahead of expectations over the past year, against just a third of global respondents.

Just 30% of global respondents now express confidence in growth by acquisition, against 54% in an earlier survey published in May. Only 46% expect organic growth, against 55% earlier.

Some 49% of respondents rate premium growth as their most positive growth prospect, with promising opportunities identified in China and East Asia (47%) and India and South Asia (33%).

Improved risk and capital management has rocketed up the priority list in the wake of the downturn, with 51% focusing on improved risk-based decision-making. Nearly 50% plan to improve co-ordination between risk and key functions such as finance and operations.

Despite the potential impositions, global insurers concede that improved regulation such as Solvency II is expected to lead to improved risk management, better financial stability and a longer-term business outlook.

Insurers are optimistic about future conditions, with 77% expecting improved business performance by 2012.

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