Instability in the economy, problems with underwriting performance, and the scarcity of reinsurance protection are some of the main reasons why AM Best is keeping its negative outlook on the non-life insurance market in the UK.
According to the rating agency, performance would likely continue to be difficult, especially in the retail motor and property lines, as a result of high levels of inflation brought on by supply chain disruptions, a tight labor market, and high energy prices in 2023.
AM Best notes that in October 2022, UK Consumer Price Index (CPI) inflation hit 11.1%, a 30-year high and significantly more above the Bank of England’s (BoE) 2% objective. It stayed high at 10.4% in February 2023 and BoE anticipates that this will rise over its 2% target in the short to medium term.
According to AM Best, “Throughout 2022, claims costs skyrocketed due to the rise in the cost of replacement parts and elevated labor costs.”
“Inflationary pressures had a material impact on the profitability of motor and property lines, which account for roughly 60% of the non-life retail gross written premium in the UK market,” the company writes.
The crisis between Russia and Ukraine in early 2022, according to AM Best, also made the global macroeconomic environment worse.
