London market tops UK insurer peers in claims-beating pricing power

The UK non-life insurance market favours the nimbleness of the London market over their standard industry corporate peers who can do less to keep rate ahead of loss cost, the  Fitch Ratings agency has said in a report.

The company market now faces a deteriorating outlook as "the introduction of general insurance pricing practices (GIPP), high claims inflation, normalising claims frequency coupled with significant lag in pricing corrections driven by strong competition in the sector will exert downward pressure on earnings in 2023."

Fair pricing regulations designed to ban price-walking and penalizing loyal clients should "result in lower margins for insurers in 2022 and into 2023," Fitch said.

With additional competitive pressures in motor, "premium rate increases are significantly lagging behind claims inflation in both home and motor insurance," authors wrote.

With motor pinched on both rate and cost sides, "a significant price correction would be required to bring the sector back to profitability." Given the likely lag in pricing, "the benefit in terms of improving profitability is unlikely to be seen before 2024."

The London market, in turn, still enjoys "stable sector profitability," a neutral outlook and pricing momentum for 2023.

"Fitch expects positive pricing momentum to be maintained into 2023," authors wrote. "Pricing keeps pace with loss cost increases and higher reinvestment yields help to offset the increasing pressure on margins from inflation."

Lingering challenges include increasing economic uncertainty, falling asset values and inflation.

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