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The Actuary The magazine of the Institute & Faculty of Actuaries

AM Best maintains stable outlook for UK non-life industry

Intense competition and the effect of the weak economic climate on investment returns and loss experience continue to put pressure on UK non-life insurers' 2010 financial performance, according to AM Best.

Results for 2010 provide further evidence that UK insurers' ability to subsidise weak accident-year returns with reserve releases has been reduced, the ratings agency said.

According to AM Best, insurers have responded to this by raising premium rates, with material increases achieved for poorly performing business, particularly for personal motor business.

Insurers with material exposure to UK motor business compounded a difficult 2009 with a poor performance in 2010, with reserve strengthening adding almost six percentage points to the sector's loss ratio, AM Best said.

The agency expects corrective pricing to lead to better accident-year results in 2011, assuming a normal level of weather-related losses in the remainder of the year.

There are signs that reserve redundancies from prior years have been materially drawn down. Outstanding claims for business written from 2002 to 2006 in hard market conditions are reducing, while reserve cushions built into business written subsequently appear to be lower.

The uncertain economic climate, combined with claims inflation and competitive pressure on terms and conditions is making reserving more difficult AM Best said.

The ratings agency also said it anticipates ‘modest' investment income in 2011, as returns on new cash inflows remain low due to the interest rate environment and the fact that U.K. non-life insurers tend to hold conservative investment portfolios.

Though preparations for Solvency II are well under way AM Best said insurers have had to incorporate flexibility into their planning due to uncertainty surrounding final capital requirements and the date of full implementation.

Source: Insurance Insight