UK P&C outlook negative as challenges are set to last
Rating agency AM Best has a negative outlook on the UK’s non-life market as the negative impact from the challenges the UK sector is facing is likely to last.
Persistent competitive market conditions, uncertainty related to legislative changes and the potential impact of ‘Brexit’ on the UK economy, create an overall difficult operating environment and earnings are likely to be depressed over the medium term, according to the rating agency.
In 2017, insurers had to contend with unrelenting price competition, an unfavourable change in the discount rate used to calculate lump-sum personal injury compensation, a further hike in insurance premium tax, and uncertainty related to the UK’s decision to leave the EU. The impact of these challenges is likely to be much longer lasting than just a single year, AM Best noted.
The majority of business written by UK non-life insurers falls within the three classes of motor, liability and property. The market has reported accident-year combined ratios above 100 percent in each of the past five years for both motor and liability business, reflecting a weak pricing environment, combined with high losses arising from a number of factors including an increasingly litigious claims environment, costlier bodily injury claims and ongoing insurance fraud. In contrast, the property segment has generated sub-100 percent accident year combined ratios in several of the past five years. Property earnings have, however, been buoyed by the absence of major wind and flood activity, which will not persist indefinitely. In addition, overall calendar year underwriting earnings of UK insurers have been impacted by volatile prior year reserve development over the past five years, with 2016/17 results hit by reserve strengthening for personal injury claims in the motor and liability sectors.
Notwithstanding this, capitalisation is generally robust and the sector’s risk management capabilities are viewed as strong. Going forward, companies that are able to differentiate themselves and build a competitive advantage through more sophisticated use of data and technology will be better placed to navigate this difficult environment, according to AM Best.
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