UK P&C outlook turns negative as inflation threatens margins

Moody’s has turned its outlook on the UK’s property and casualty (P&C) insurance sector to negative from stable, expressing concerns over rising claims costs due to burgeoning inflation, intense competition and regulatory changes, as well as slowing pace of rate increases in commercial lines.

“High inflation is pushing up P&C claims costs, exacerbating a steady increase in motor claims as vehicle usage normalises following a pandemic-induced decline,” the ratings agency has said.

Moody’s analysts warned that “retail P&C insurers will struggle to push through offsetting price increases, held back by stiff competition and recent regulatory pricing reforms.”

In the commercial P&C market, the agency believes prices will continue to rise, but at a slower pace. And, that prolonged inflation is a key threat as it will increase reserving and pricing risk, particularly in long tail commercial P&C lines.

Moody’s said its outlook change reflects “the adverse impact of high inflation on P&C underwriting profitability, and our expectation that P&C price increases and rising investment yields will be insufficient to restore earnings over the next 12-18 months.”

At the same time, the agency has maintained a stable outlook on the UK life insurance sector, stating its “robust capital and healthy earnings, which are relatively resilient to slowing economic growth.”

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