Conditions remain challenging for property insurers in the UK as strong competition and the availability of relatively cheap reinsurance put pressure on rates in spite of claims inflation, according to A.M. Best.
A report by the rating agency found that the 100 largest UK insurers reported a combined underwriting loss in 2017, due in part to an increase in weather-related losses, although the combined deficit was lower than in the previous year, when earnings were hit by a reduction in the personal injury discount rate.
The performance of individual market participants varied considerably, but the earnings of companies with London market operations generally deteriorated due to catastrophe losses in North America, A.M. Best said.
This was particularly true for the UK property segment, where the accident-year ratio deteriorated by six points in 2017 due to a combination of lower prices and higher claims costs, driven by higher weather-related losses as well as high claims costs from escape of water from burst pipes.
A.M. Best noted that expense ratios in the property segment tend to be higher than for other major lines of business and have deteriorated in recent years as premium rates have fallen.
Competition in the UK property space remains largely price-driven, particularly in the household segment, where barriers to entry are low due to the bias towards telephone and internet sales, as well as the increased use of price-comparison websites.
For 2018, A.M. Best expects property insurers’ results to be affected by storm losses in the first and fourth quarters of the year, in addition to a spike in subsidence claims following a hot and dry summer.
Going forward, it added that the sector’s performance will continue to be volatile owing to its dependence on the frequency and severity of weather-related events, and flood risk in particular.
The ongoing competitive market also means that the insurers are likely to pass on Flood Re’s forthcoming price reductions to their consumers, which will see reinsurance premiums for buildings and contents lowered by 12.5% and 33%, respectively, starting in 2019.
Overall, A.M. Best considered the UK insurance industry to be well capitalised, but with significant differences in solvency ratios across the market depending on the nature of business written, the capital strategies insurance groups in respect of their subsidiaries, and recent performance.