6 October 2015 Insurance

Market conditions remain tough in non-life: AM Best

Market conditions for UK non-life insurers are challenging as pricing remains weak across most business lines amid fierce competition, according to a new report by ratings agency AM Best.

The firm claims that first-half results in 2015 have benefitted from the absence of large flood and storm losses but the frequency and severity of weather-related events in the remainder of the year will be a key driver of final performance.

According to the report, the motor sector has recently seen a positive impact on claims experience from recent legal reforms, however, it is predicted that this will be at least partly offset by last year’s pricing actions.

Liability insurers are also dealing with an increase in claims for industrial disease, particularly in respect of noise-induced hearing loss, said AM Best.

The insurance industry and the UK Government continue to fight against insurance fraud, it noted.

“In December 2014, the then Lord Chancellor announced the formation of an insurance fraud task force charged with assessing the need for further legislation or voluntary measures to tackle this widespread problem,” says the report.

AM Best also claims in the report that investments will provide only marginal earnings support this year, as low interest rates persist.

“In general, UK insurers pursue defensive investment strategies and low-risk assets, such as cash deposits and high-quality fixed-income securities, dominate portfolios. With inflation contained and growth sluggish, the Bank of England is expected to maintain historically low interest rates into 2016.”

The recovery of the UK economy remains slow, with GDP growth of around 2.7 percent expected in 2015 (2014: 2.6%), driven by low inflation, weak commodity prices and strong consumer and investor sentiment. This should help support demand for insurance cover in the commercial lines sector, said AM Best.

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