A.M. Best: UK Non-Life Insurers’ Profits Under Pressure

October 14, 2014

Profit margins in the U.K. non-life insurance sector are under pressure this year as companies fight to maintain pricing discipline in an extremely competitive market, according to a new A.M. Best special report. Premium rates are falling in personal lines and most notably for motor business.

“Non-life insurers have made significant progress toward compliance with pillars 1 and 2 of Solvency II, covering its financial requirements and risk management and governance standards”

The Best’s Special Report, titled, “U.K. Non-Life Insurers Compete Fiercely, Brace for Solvency II Implementation,” also states that regulation continues to consume considerable management time. Preparation for Solvency II, the proposed regulatory and capital regime for EU insurers, has gathered pace after the approval of Omnibus II in March this year. U.K. insurers will be subject to the Solvency II regime from 1 January 2016.

“Non-life insurers have made significant progress toward compliance with pillars 1 and 2 of Solvency II, covering its financial requirements and risk management and governance standards,” said Catherine Thomas, director of analytics and author of the report. “However, there has been a relative lack of progress on the reporting and disclosure requirements of pillar 3, and companies will need to devote significant resources to this pillar if they are to meet the demanding requirements of the new regime by 2016.”

Other key findings in the report include:

  • Motor: this sector has reported underwriting losses in each of the past five years, due to inadequate pricing and poor claims experience linked to the escalating cost of third-party bodily injury claims. However, the implementation of legal reforms in April 2013 is expected to have a positive impact on claims experience.
  • Property: Accident-year results improved in 2013, reflecting a lower level of weather-related claims despite significant flood and storm losses in December. The frequency and severity of weather-related events are the main drivers of performance in the U.K. property sector. There have been significant advances in flood risk management and forecasting in recent years, along with improved flood risk models.

Source: A.M. Best

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