AM Best has opted to maintain its negative outlook on the UK non-life re/insurance segment, citing economic uncertainty as a key headwind.
Further considerations included COVID-19 lockdown measures that coincided with the country’s preparation to leave the European single market.
Together, these factors have created the biggest economic contraction on record and will maintain pressure on premium income going forward, AM Best says.
The rating agency also noted that strong competition and claims inflation are likely to dent technical results in the motor line of business, which accounts for approximately a third of UK non-life premiums.
Further weighing on the segment’s outlook is increased regulatory scrutiny of pricing practices for home and personal motor insurance, as well as ongoing exposure to weather-related events.
“The underlying technical performance of the U.K. non-life market remains relatively weak, characterised by significant competition, particularly pronounced on the retail side,” said AM Best senior financial analyst William Keen-Tomlinson.
Offsetting the negative factors to some extent is the planned implementation in May 2021 of whiplash reforms contained in the Civil Liability Act 2018, which AM Best says 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.
Despite underlying challenges, AM Best expects risk-adjusted capitalisation in the UK P&C 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.