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Profit margins feel squeeze in Britain

UK insurers’ profit margins are under pressure as companies fight to maintain pricing in an extremely competitive market, according to a report by AM Best.

“Overall, the… non-life market is still profitable, with positive underwriting earnings reported in each of the past two years. However, risk-adjusted capitalisation is under pressure.”

Last year the combined capital and surplus of the largest 100 non-life insurers fell modestly, the report says.

Premium rates are falling in personal lines, especially in motor business, according to the ratings agency.

The AA British Insurance Premium Index shows the average quote for a home buildings policy fell by a record 8.5% in the year to July. Premiums for a typical contents policy dropped 5.7% and the combined buildings and contents policy average was down 9.6%.

The results are “due in part to the effect of more competitive market conditions on rates”, AM Best says. 

Bad weather in the first quarter of this year led to £451 million ($825.77 million) of flood claims and £640 million ($1.17 billion) of storm claims.

The Flood Re pool – funded through a levy on all policyholders – will limit the cost of covering properties at most risk and is expected to be ready to operate in the next northern summer.

AM Best says the UK motor sector has reported underwriting losses for the past five years, due to rising third-party injury claims. 

Rates continued to fall in the year to July, with the average quote for an annual comprehensive car insurance policy down 19.3%.

Last year the Government introduced reforms to cut legal costs related to injury claims, while further measures are expected this month to reduce whiplash fraud, which costs insurers more than £2 billion ($3.66 billion) each year.

“To remain competitive, insurers are refining their pricing strategies and looking to differentiate themselves,” AM Best says. “An increasing number are offering telematics products, which are proving particularly attractive to younger drivers.”