Three players stand out in ‘crowded and competitive’ motor market

Motor insurance is a crowded and competitive market — yet certain players have been outperforming their rivals by some distance, seemingly leveraging specific but different competitive advantages.

This is according to a new research by Litmus Analysis, which conducted a comprehensive review of the results of 26 UK & Gibraltar domiciled motor insurers in the five-year period from 2016 using Solvency II data from AM Best.

The firm developed a UK Market Motor cohort of insurers to review carrier specific underwriting performance covering around 98 percent of UK motor GWP. One key focus was gross underwriting results, which it says gives a fundamental perspective on the quality and volatility of an insurer’s book.

The research found that as per the Solvency II data Acromas, Sabre and Admiral were the three best performers in the UK motor insurance market in the five years to 2020.

“The data generated here will be fascinating to many in the market because it throws up several surprises around how the performance of insurers can vary dramatically in what many might have assumed was a relatively homogenous market,” said Stuart Shipperlee, managing director of Litmus Analysis.

Acromas and Sabre both posted a gross underwriting performance almost 20 percentage points better than the median of the cohort, while Admiral (Gibraltar), Admiral’s largest carrier, excelled in its net underwriting performance, posting a result some 36 percentage points better than the median of its peers.

Acromas and Sabre posted an average gross loss ratio (GLR) over five years of 52.5 percent and 53.3 percent, respectively. The cohort as a whole posted a median performance of 72.7 percent over the same period.

Litmus found that both carriers have also proven to be very effective users of the motor reinsurance market. Sabre’s 5-year net loss ratio (NLR) was an exceptional 45 percent despite a quite modest reinsurance spend. Acromas’ net ratio was minus (yes, minus) 28 percent. On this net basis Admiral’s major, Gibraltar-based, carrier also delivered a stand-out result with a 5-yr. NLR of 33 percent. The median result for the cohort was 69 percent.

“The type of gross loss ratios delivered here by Acromas and Sabre are not unheard of among small, niche players, but they become very challenging to deliver with greater premium volume as the opportunities to risk select to this apparent degree reduce. However, both carriers had gross written motor premiums in 2020 north of €180 million and so achieved this at some reasonably significant business scale,” noted Shipperlee.

“Conversely, the underwriting opportunities that can come from smaller books even within larger insurance groups are highlighted by two UK motor operations too small to make our cohort (below €50 million GWP),” he added. “Motors Insurance delivered a 5-yr. GLR of 39.4 percent (€10m of 2020 motor GWP) while Hiscox’s UK carrier came in with a 48 percent GLR average (€24m of 2020 motor GWP).”

Acromas is owned by Saga, a specialist in offering travel and personal finance products to people over 50. The demographic of this group and the deep connections the company has to its customers may explain its exceptional underwriting performance, the report noted.

Sabre is a specialist motor insurer that, through various brands including Insure 2 Drive and Go Girl, targets higher-than-average premium sectors using data and risk selection to deliver its “market-beating underwriting performance”.

Admiral (Gibraltar), the biggest of the standout performers by some distance, appears to be bolstered in its performance by a good relationship with its reinsurers, said Litmus. It shares 40 percent of its UK insurance risks with Great Lakes, a subsidiary of Munich Re.

“The impact of reinsurance usage tells an interesting story,” Shipperlee further explained. “Comparing UK Insurance (third place in the 5-yr. GLR table but fifth on the NLR basis) with Admiral Gibraltar (by far the larger of the two Admiral carriers in our cohort) highlights the potential impact of reinsurance. UK Insurance gives up a couple of points in its 5-yr. NLR vs the GLR (as would be what one would commonly expect economically - assuming it is paying to reduce volatility). But Admiral Gibraltar gains a whopping 31 percent, reducing a 64 percent 5-yr. GLR to an NLR of 33 percent.”

He continued: “Acromas and Admiral Gibraltar both cede a lot of their book (retention percentages in the mid-20s). In essence they are very substantially using their reinsurers’ capital to write the gross volumes that they do.

“Sabre, by contrast, retains over 90 percent of gross premium. We presume its protection buying focus is in handling the potential volatility from catastrophe losses and liability exposures.”

“The ceded loss ratios (CLRs) also covered in our report describe the underwriting result a carrier’s reinsurer(s) are, in the aggregate, achieving. The closer the CLR is to the GLR and the lower the cedant’s retention rate, the more the cedant/reinsurer relationship appears to reflect the sharing of loss frequency. Higher differences and retentions suggest the cedant is primarily buying protection against loss severity,” Shipperlee concluded.

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