UK non-life insurers face mounting pressure as competition remains fierce

In its UK Non-Life Insurers Weather Challenging Market Conditions report, AM Best said that overall last year saw the 25 largest UK-regulated insurers, ranked according to non-life gross premiums written (GPW) and including some international business, post underwriting results in line with 2011. Both years saw 'significant improvements' on 2010 when cold weather losses impacted property lines and motor business required reserve strengthening, said the rating agency. In 2012, UK weather-related claims totalled £1.19bn-the highest annual figure since the £3bn in 2007 caused by summer floods-but 'did not have material impact on overall underwriting results', it added.hideThe report also notes that last year insurers with London market operations benefited from a more benign period for natural catastrophes around the world. Of the largest three UK non-life segments-property, liability and motor-only property has posted underwriting profits on a calendar year basis between 2008 and 2012. The sector made an underwriting profit in four of the past five years. The exception being 2010 when a cold winter impacted results and its combined ratio deteriorated to 101.7%. In 2012 it posted a combined ratio of 98.7%, up from 97.3% in 2011. UK non-life liability lines returned combined ratios between 104.7% and 109.3% from 2008 to 2012. "As this is a long-tail line, investment income will help offset some of this segment's underwriting losses, although low investment yields increase the urgency of improving rates in this line," said AM Best in its report. The sector experienced another year of underwriting losses in 2012. A relatively modest prior-year improvement of 3.4% pushed the combined ratio to 109.3%. This is up from 108.6% in 2011. The UK motor segment has produced losses in each of the past five years with particularly poor performances in 2009 and 2010, when the combined ratio reached 119.5% and 118.8% respectively. In 2012 the combined ration was a 'more manageable' 106.6%, said AM Best, up from 104.7% in 2011. Mathilde Jakobsen, Senior Financial Analyst at AM Best, 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 performance drivers in the UK insurance market. Given the sector's narrow margins, large scale flooding in particular has the potential to push the market into an underwriting loss, said AM Best. As such it welcomes news early this year that the UK's 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 at AM Best and the report's author said: "AM 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 UK insurance sector continues to experience a period of regulatory change following the abolishment of the Financial Services Authority on 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," said AM Best.

UK non-life insurers face mounting pressure as competition remains fierce

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