Thursday, 20 October 2011
Reserve adequacy a concern in UK Company and London markets-AM Best
There are growing concerns over the adequacy of reserves in the UK non-life Company and London markets, according to AM Best.
According to Catherine Thomas, Director of Analytics at the rating agency weak pricing in the casualty sector, particularly in the US, is putting downward pressure on the profit margins of the London market and increasing worries over reserve adequacy.
“This is of particular concern given the growth we have seen from London market companies in the primary US market in recent years, with a number setting up local admitted and surplus lines insurers,” said Miss Thomas.
Speaking at AM Best’s 2011 Insurance Market Briefing – Europe yesterday Miss Thomas also noted that there is mounting concern over the company market as the uncertain economic outlook, claims inflation and competitive pressure on terms and conditions is making reserving more difficult.
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In the company market property rates are slowly rising but liability lines, with certain exceptions, remain soft, AM Best said. Motor insurers are still struggling to achieve the rate increases necessary to return the overall market to current year underwriting profitability, added the rating agency.
However 2011 is expected to witness a ‘modest’ improvement in accident year results. “A corresponding improvement in pre-tax earnings is unlikely with the contribution of prior year profits expected to reduce and investment income likely to be low,” said Miss Thomas.
Even though there is pressure on performance and reserves AM Best does not expect a material erosion of capital in this market any time soon and capitalisation is forecast to remain strong.
In the London market a combination of catastrophe losses, a difficult trading environment and shrinking reserve releases are putting considerable pressure on underwriting results, continued the rating agency. Investment returns are offering little relief.
But in general London insurers are well placed to meet these challenges because they entered 2011 with strong balance sheets and current losses are manageable from a capital standpoint, the rating agency concluded.
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