U.K. motor insurance market turns first underwriting profit in 20 years

The United Kingdom’s motor insurance industry achieved a profit in 2013 – the first in two decades – expected to post a net combined ratio (NCR) of 98.5%, Ernst & Young noted in an update Tuesday.

Analysis of the year-end results of the majority of listed insurers indicates the NCR is going to be 98.5%, a 3.9% improvement on 2012, and the strongest underwriting performance since 1994, the update says.

Among other things, reserve releases are up, having increased 7.2 percentage points since 2010. “This activity mirrors the pattern that was seen in the mid-noughties, where they peaked at 12.8% in 2007 before falling to below 0% in 2010,” the update adds.

“Soaring claims rates driven by a rampant claims culture have meant that insurance underwriting has proven to be perpetually unprofitable over the last decade. Returns were heavily supplemented by ancillary profits or add-ons from other sections of the business,” Catherine Barton, head of retail property and casualty actuarial, EMEIA, for EY, comments in the update.

“However, given the size of reserve releases this year, it may not be the turning point and cause for celebration the industry is eager for,” Barton cautions. Without reserve releases, the COR for the industry for 2013 is 105.7%.

She says the question remains: “Are strong reserve releases simply masking true performance in the same way they did in the mid-noughties, and is profitability set to mirror the 2009 fall when reserve releases inevitably deplete?”