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Deloitte predicts motor insurance industry to make losses in 2009 and 2010 |
Underwriting losses of £5 per every £100 of premium in 2008
Underwriting losses for 2009 could be up to £1billion
However motor premiums may be on the rise
Deloitte predicts that the £12 billion motor insurance industry is set to make insurance losses in 2009 and 2010, the first time since 2000. Further, Deloitte estimates that motor insurers would need to raise their premiums by 5% to replace the income lost from lower investment returns.
James Rakow, insurance associate partner at Deloitte, commented:
“Results at a headline level for UK motor insurers have shown this market cruising along at close to underwriting breakeven point from 2001 to 2007. In 2008, the latest year for which results are available, the headline net operating ratio was 105%. In other words motor insurers were making an underwriting loss of £5 for every £100 of premium. In 2008 investment market conditions were good enough for insurers to recoup this underwriting loss and make a small insurance profit. In 2009 I don’t think that insurers will be able to rely on investment performance to save them from making a loss.”
Deloitte’s analysis also found that without support from prior year reserve releases 2009 could see underwriting losses of around £1 billion.
James Rakow commented:
“Looking beneath the likely headline result for 2009, the picture is even worse for motor insurers. Indications are that the current year trading is far from being profitable at a market level and this is likely to remain the case in 2010. For the last few years prior year reserve releases have been at exceptionally high levels. I do not expect to see anything other than modest levels of reserve releases in 2009.”
The latest figures from Deloitte’s Motor Premium index show that motor premiums are increasing at their fastest rate since the index began in 2003. The index measured an increase in premiums for comprehensive cover of 11% for the year to September 2009 and 4% over the quarter.
Commenting on premium increases, James Rakow continued:
“One piece of positive news for motor insurers is that there is now strong evidence in the market that motor premiums are on the increase. This is not such good news for consumers who may find it increasingly difficult to shop around for a cheaper premium at renewal. With lower investment returns and the prospect of only modest support from prior year reserve releases insurers have had to look to premium increases to improve their results.”
-Ends-
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