The profitability of companies in the London, UK non-life re/insurance sector will continue to come under pressure throughout 2019 as intense competition erodes margins, according to Fitch Ratings.
Fitch said its outlook for the sector would remain negative in light of a number of ongoing challenges, including regulatory scrutiny, high expense ratios, and increasing attritional losses.
In particular, market studies by the Financial Conduct Authority (FCA) on general insurance pricing practices could lead to more competitive pricing for some customers in the home and motor insurance sectors, Fitch noted.
However, the rating agency does not expect price changes to materially weaken insurer profitability, as it expects that companies will try to realign pricing through a combination of price cuts for long-standing customers and price rises for newer customers.
Pricing environments are expected to be particularly competitive in the household insurance space, where the increasing use price comparison websites is impacting profitability.
Elsewhere in the company market, the motor insurance sector is expected to come under pressure again after a profitable 2018 due to claims inflation related to the weakness of the pound and the increased cost and complexity of repair work.
Profitability in the London market will also face challenges in 2019 as excess capacity continues to fuel competition, Fitch said.
This is despite efforts from Lloyd’s to renew the market’s focus on the profitability of underwriting, which is unlikely to result in meaningful improvements in the short-term.
Fitch noted that expense ratios also remain a key focus for London market re/insurers and pointed to a number of Lloyd’s projects designed to increase efficiency and innovation, although it will again take time for the benefits of these projects to meaningfully reduce expense ratios.
London market insurers could benefit from modest rate improvements at January 2019 renewals, Fitch said, with 2H18 losses such as Hurricanes Florence and Michael, Typhoons Jebi, Mangkhut and Trami and the California wildfire supporting prices in loss-affected lines and regions.