Global financial services ratings agency, A.M. Best, has maintained its negative outlook on the UK non-life insurance market in light of strong competition, legislative changes, political and economic uncertainty, and increased regulatory scrutiny.
A.M. Best expects the profits of UK non-life insurers to remain under pressure in 2019, driven largely by strong price-based competition across the industry. As an example, in the property sector, premium rates are falling despite a rise in the costs of claims, while rate improvements witnessed in the motor space in 2017 have proved unsustainable.
At the same time, while recent legislative changes, introduced through the Civil Liability Act, are expected to improve claims experience for both motor and liability insurers, the fact the market is so competitive means much of the benefit is likely to be passed on to consumers as price reductions.
Adding to these pressures is the UK’s impending and still widely uncertain departure from the European Union (EU), with the associated economic fallout likely to have some negative implications for UK non-life players’ investment earnings, claims inflation and premium volumes, warns A.M. Best.
“The strong competition that has eroded UK insurers’ profit margins in recent years shows no sign of abating. Lacklustre earnings are likely to be reported for 2018 and profitability remains under pressure in 2019…
“The UK insurance market is also having to contend with increased scrutiny of its pricing strategies from the Financial Conduct Authority, as part of the regulator’s probe into general insurance pricing practices,” explains A.M. Best.
Despite a testing operating landscape, the capital adequacy of insurance companies in the UK non-life sector is generally robust, and A.M. Best says that it expects this to continue to be the case.
A.M. Best advises that it could revise its outlook for the UK non-life insurance sector to stable from negative, potentially in the case of improved underwriting performance, supported by improved technical pricing and the positive impact of legislative reform, coupled with reduced economic uncertainty.
It’s worth noting that as the UK’s Brexit mess continues and clarity ceases to exist, it could be some time before the UK’s economic uncertainty reduces.
