Fitch Ratings has released a report monitoring UK non-life insurers, which showed reduced pandemic-related losses on business interruption and travel policies in commercial lines in 2021.
The group also experienced less severe weather-related claims within their retail home lines, which overall helped to offset a deterioration in performance on insurers’ motor book, as an easing in pandemic-related restrictions led to a rise in claim frequencies.
According to the report, underwriting results for motor insurers deteriorated but remained above 2019 levels, as a normalization of claims frequencies and rising accidental damage inflation pushed up claim costs. For some insurers this was partially offset by strong prior-year reserve releases.
Fitch explained that the exception to this was Hastings Group Holdings Limited, which reported a significant improvement in the motor combined ratio of 14pp due to favorable reserve development on prior-year large bodily injury claims.
Household insurers benefitted from strong prior-year reserve releases and calmer weather conditions in 2021 than 2020, when storms in 1Q20 caused widespread flooding and damage.
This masked the underlying issue of rising claims inflation and underlying pricing pressures from strong competition in the household insurance sector.
The Financial Conduct Authority pricing reform, implemented in January 2022, has led to significant pricing disruption for personal line insurers.
Market data from Consumer Intelligence showed sharp price rises on new business, particularly on home, as insurers pushed through price increases on new business to bring them into line with prices quoted to customers at renewal.
Fitch expects home pricing to remain under pressure despite initial rate rises on new business. The agency believes current conditions could see more new entrants in the home insurance market, leading to greater competition in an already competitive operating environment.
The agency’s sector outlook on the UK non-life company market is deteriorating, as in motor, high claims inflation and claim frequency increasing towards pre-pandemic level will lower profitability.
In addition, new pricing rules by the Financial Conduct Authority have led to short-term pricing volatility in the household and motor insurance markets. This, together with ultra-low yields, could lead to negative pressure on insurers’ earnings.