The FINANCIAL — Intense competition and the effect of the weak economic climate on investment returns and loss experience continue to put pressure on U.K. non-life insurers' financial performance.
Results for 2010 also provided further evidence that U.K. insurers' ability to subsidise weak accident-year returns with reserve releases has been reduced. In response, insurers have raised premium rates, with material increases achieved for poorly performing business, particularly for personal motor business. These actions should lead to better accident-year results in 2011, assuming a normal level of weather-related losses in the remainder of the year. A.M. Best Co. is maintaining a stable outlook for the U.K. non-life industry.
- 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 outlook, combined with claims inflation and competitive pressure on terms and conditions is making reserving more difficult.
- For insurers with material exposure to U.K. motor business, a difficult 2009 was followed by an even worse 2010. Reserve strengthening added almost six percentage points to the sector's loss ratio.
- Investment income is likely to be modest in 2011, as returns on new cash inflows remain low due to the interest rate environment. U.K. non-life insurers' portfolios tend to comprise conservative investments.
- Preparations for Solvency II are well advanced and consuming significant resources. However, insurers are having to incorporate flexibility into their planning due to uncertainty surrounding final capital requirements and the date of full implementation.
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