UK home insurance market edges into unprofitability
After eight years of good earnings, profitability is expected to plummet in 2016 for the UK home insurance market with the sector posting a net combined ratio of 99 percent, according to an EY analysis.
This estimate assumes that there will be no major flooding between now and 2016-end and reserve releases of 1.9 percent. Without such a reserve release, insurers would be in the red with a 101 percent combined ratio. The situation is set to worsen further in 2017.
Carriers struggle to remain competitive in a continued low interest rate environment with ever rising expenses.
Profitability of UK home insurers is under pressure as they are facing a continued rate deflation (-1.8 percent) throughout 2016 alongside claims inflation at 2.3 percent year on year.
In addition, a 4 percent overall rise in insurance premium tax and the introduction of the Flood Re levy have resulted in significant additional costs.
Tony Sault, UK General Insurance Leader at EY, said: “Unfortunately it will not come as a surprise to the industry that the run of low 90s NCRs has come to an end. And, if the UK is hit with damaging weather towards the end of the year, driving claims up, the modest profitability we are predicting will be lost, leaving insurers between a rock and a hard place in terms of relying on reserves and increasing premiums.
“The effect of the continuing low interest rate is really squeezing the insurance sector, and as the pound weakens further, import prices rise, which could see claims inflation rise further.”
In 2017 it is predicted that home insurers will fall firmly into unprofitability with a net combined ratio of 101 percent, and premiums are forecast to drop a further 1.7 percent from 2015 levels.
