After the UK non-life market reported an overall underwriting deficit last year in 2017, A.M. Best said the industry will likely continue to reflect ongoing competitive market conditions, although most companies remain buoyed up by robust risk-adjusted capitalisation.
The impact of economic uncertainty associated with Brexit and a further increase in insurance premium tax have added to market pressures for UK non-life insurers, although most firms report strong regulatory solvency ratios.
A.M. Best predicts that overall the market will remain highly competitive with further premium reductions likely.
This is compounded by a challenging claims environment where fraud and a growing compensation culture place upward pressure on costs, even with government reforms and industry action.
A key driver of performance for the remainder of 2017 will be the frequency and severity of weather-related events as so far earnings have benefitted from the absence of large flood and storm losses.
A.M. Best explained the challenges facing UK non-life market-players; “competition is still fierce and largely price driven, particularly in personal lines, where barriers to entry are low due to a bias towards telephone and internet sales and the popularity of price-comparison websites.
“For small commercial risks, pre-trading is becoming widespread and price-based competition in this market is increasing.”
Despite these challenges, underwriting results are expected to return to near breakeven levels in the near term, with the industry propped up by additional income from add-ons such as breakdown cover and legal expenses.
A.M. Best expects the UK non-life sector’s capitalisation to remain strong, supported by generally good risk management practices.
In addition, loss experience in 2018 could improve through the implementation of the Civil Liability Bill and reforms to compensation payments announced in September, however, with the market expected to becoming increasingly competitive, it’s likely re/insurers will see earnings margins squeezed.
