AM Best Maintains Negative Outlook on UK Non-Life Insurance Market

April 9, 2021

AM Best is maintaining a negative market segment outlook on the United Kingdom non-life insurance segment, citing economic uncertainty as a key headwind for UK non-life insurers.

In addition, COVID-19-related lockdown measures coincided with the country’s exit from the European Union, which together contributed to the biggest economic contraction since records began, said AM Best, noting that this is expected to maintain pressure on premium income.

The UK’s gross domestic product (GDP) contracted by 9.8% during 2020, noted the ratings agency, quoting the International Monetary Fund (IMF).

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Demand for insurance, which is linked to GDP, is expected to come under pressure in 2021, particularly in the travel and hospitality sectors, said AM Best in its report titled “Market Segment Outlook: UK Non-Life Insurance.”

The insurance industry’s prospects will likely depend on the level of economic recovery, the report continued.

While the IMF forecasts the UK’s GDP will grow by 5.9% in 2021 and 3.2% in 2022, AM Best cautioned that uncertainty hangs over these forecasts. “The economic outcomes of both COVID-19 and Brexit could increase financial pressure on businesses and drive volatility in financial markets, particularly as government assistance reduces.”

The full implications of the pandemic for the UK economy and the insurance industry may not fully emerge until the UK government ends its financial support package that includes job retention schemes and business loans, explained AM Best. “Further economic bad news could lead to sustained pressure on insurance business volumes.”

Motor Insurance

Strong competition and claims inflation also are likely to dent technical results in the motor line of business, which accounts for approximately a third of UK non-life premiums, said the ratings agency.

The report also cites increased regulatory scrutiny of pricing practices for home and personal motor insurance and ongoing exposure to weather-related events as factors weighing on the sector’s outlook in the UK.

Somewhat mitigating these negatives is the planned implementation in May 2021 of whiplash reforms contained in the Civil Liability Act 2018, which should have a positive impact on claims costs. The exclusion of communicable diseases, including COVID-19, from business interruption policy extensions written since the outbreak of the pandemic is another moderating factor, said AM Best.

“The underlying technical performance of the UK non-life market remains relatively weak, characterized by significant competition, particularly pronounced on the retail side,” commented William Keen-Tomlinson, AM Best senior financial analyst and report author.

Despite underlying challenges, AM Best said it expects risk-adjusted capitalization in the segment to be resilient. Factors that may lead to AM Best revising this outlook in the future include reduced economic uncertainty and a sustainable improvement in underwriting performance.

Source: AM Best

Topics Trends Market AM Best

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