26 February 2020Insurance

Stable outlook for UK P&C insurance - Moody's

The outlook for the UK P&C insurance sector remains stable, reflecting the sector's robust capital levels and good operating performance, Moody's Investors Service has said in a new report. However, the report, titled P&C Insurance - UK: 2020 Outlook Remains Stable as Resilient Capitalisation and Good Operating Performance Offset Mounting Profit Pressures, also states that pressure on the sector is mounting.

"UK P&C insurers' capitalisation remains robust, helping insurers deal with intense competition, rising claims costs and potential technological disruption," said Helena Kingsley-Tomkins, an assistant vice president at Moody's. "Insurers' operating performance is good for now, and the sector's profitability remains good, although it may deteriorate over the coming year."

The sector has achieved an average operating margin of 8 to 9 percent in recent years, and pre-tax profit slightly improved in the first half of 2019.

"This extends the trend initiated a year earlier, as insurers benefitted from improving underwriting results," said Moody's.

Nonetheless, while insurers' operating performance is good now, investment income is being suppressed by persistently low interest rates and underwriting margins are being squeezed as high claims inflation in the motor insurance business outpaces price increases, Moody's said.

The report noted that the industry also faces uncertainty related to regulatory reforms, and earnings contributions from reserve releases are set to fall.

Moody's said that while incumbent insurers are continuing to invest in technology to sustain market positions and profit margins, the outcome of these initiatives is highly uncertain.

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