Market capitalisation in the UK non-life sector continues to show strength despite the effects of the Ogden rate, according to a special report published by A.M. Best.
Analysing the largest 100 UK insurers by non-life gross premium income, A.M. Best found that the average solvency ratio as of year-end 2016 was in excess of 150%. While capital adequacy varied – from ratios of 91% to over 1,000% – the market was well capitalised overall.
“In 2016, the UK non-life market reported an overall underwriting deficit, principally due to reserve strengthening associated with the change to the personal injury discount rate,” said A.M. Best. “In spite of this, risk-adjusted capitalisation remained at a robust level, with most companies reporting strong regulatory solvency ratios.”
For this year, A.M. Best cited three factors affecting results: ongoing competitive market conditions, a further increase in insurance premium tax, and the impact of economic uncertainty associated with the UK’s imminent departure from the European Union.
“The ability to continue to conduct cross-border business throughout the EU post-Brexit is a pressing concern for Lloyd’s, the London market, and other UK-based commercial insurers,” stated A.M. Best. “However, for the retail non-life sector, a loss of passporting rights is unlikely to be a material issue as most write principally domestic business.”
It continued: “Nevertheless, all UK insurers will be affected by any economic fallout, which could have negative implications for investment income and claims inflation, as well as premium volumes due to a reduction in demand for insurance.”
The good news? Even amid the performance pressures, underwriting results are forecast to return to near breakeven levels soon, thanks to investments as well as ancillary income from add-ons.
“A.M. Best expects the UK non-life sector’s capitalisation to remain strong, supported by generally good risk management practices.”
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