LONDON, 23 September 2013—The U.K. non-life insurance sector faces mounting pressures, ranging from regulatory changes and competitive market conditions to an uncertain economic environment and low investment returns, according to a new report from A.M. Best Co.
The report entitled, “U.K. Non-Life Insurers Weather Challenging Market Conditions”, states that potential weather-related claims also remain a challenge to the industry, despite a respite from large climate-associated losses in the United Kingdom in the first eight months of 2013. Low investment returns and restrained consumer spending also continue to impact insurers’ overall performance.
A.M. Best expects the U.K. non-life insurance sector to continue to encounter challenging market conditions, including intense competition, as demonstrated by decreases in private motor rates in 2013. The motor segment continues to be unprofitable, returning a combined ratio of 106% in 2012. However, performance has improved compared to 2009 and 2010 when the combined ratio reached nearly 120%. In those years, heavy losses were driven by an increase in the frequency and severity of bodily injury claims, in particular, and insurers had to strengthen motor reserves.
Mathilde Jakobsen, senior financial analyst, said: “Motor reserves remained stable in 2012, raising some hope that the motor sector’s reserving issues have passed. However, future deterioration in reserves remains a threat, and another high accident-year combined ratio in 2012 shows that the motor sector does not have the margins in current years to absorb any such deterioration”.
The report also examines how the frequency and severity of weather-related claims is one of the main drivers of performance in the U.K. Large-scale flooding in particular has the potential to push the market into an underwriting loss, given the sector’s narrow margins. In June 2013, the Department for Environment, Food & Rural Affairs and the Association of British Insurers reached a new agreement to replace the Statement of Principles on the Provision of Flood Insurance. The scheme, referred to as “Flood Re”, will be run and financed by insurers as a not-for-profit fund.
Yvette Essen, director, industry research – Europe and emerging markets, and report author, said: “A.M. Best considers it a positive development that an agreement has been reached. However, many details still need to be worked out before the proposals for Flood Re receive legal backing through the Water Bill”.
The report additionally states that the U.K. insurance sector continues to experience a period of regulatory change following the abolishment of the Financial Services Authority from 1 April 2013. Insurers’ key concerns with regard to the supervisory change relate to the extra burdens of cost and time that dual-regulation by the Prudential Regulation Authority and the Financial Conduct Authority can bring.
To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=216964.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.