Best’s News & Research Service - October 22, 2018 09:20 AM (EDT)
Best’s Market Segment Report: U.K. Non-Life Insurers’ Profit Margins Under Pressure in a Competitive Market
- October 22, 2018 09:20 AM (EDT)
London //BestWire// - The profit margins of U.K. non-life insurers remain under pressure due to strong competition and unfavourable claims trends, according to a new report by A.M. Best. In the property segment, premium rates are falling in spite of rising claims costs. Meanwhile, the rate improvements achieved for motor business last year have proved unsustainable.
The Best’s Market Segment Report, “U.K. Non-Life Insurers’ Profit Margins Under Pressure in a Competitive Market,” states results for 2018 will also be affected by losses from storms Eleanor and Emma in the first quarter of the year and storm Callum in the fourth quarter, and the frequency and severity of further weather-related events will be a key driver of final performance.
Catherine Thomas, senior director, analytics, said: “In addition to strong competition and uncertainty related to legislative changes, over the next 12 months, insurers will have to contend with regulatory challenge from the Financial Conduct Authority on pricing for existing customers, as well as the impact of any fallout from Brexit on the economy, demand for insurance and claims costs. Nevertheless, in A.M. Best’s view, the currently robust risk-adjusted capitalisation of most U.K. non-life insurers positions them well to withstand persistent headwinds.”
Rate increases achieved last year for motor business have begun to reverse, as insurers anticipate cost benefits of measures outlined in the Civil Liability Bill. The planned changes to the personal injury compensation system should be positive for claims experience. However, A.M. Best notes that there is considerable uncertainty as to when the reforms will be implemented, and assuming they are not materially diluted, what their impact will be on the frequency and severity of bodily injury claims.
Yvette Essen, director of research, said: “A.M. Best expects investments will again provide only marginal support to overall earnings this year, as low interest rates persist. In general, U.K. insurers pursue defensive investment strategies, with a focus on capital preservation. In search of higher returns, some continue to modestly increase their allocation to equities and lower-rated corporate bonds, but low-risk assets such as cash deposits and high-quality fixed-income securities still dominate portfolios.”
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=279373 .
A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.