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6 April 2022Insurance

UK non-life insurance outlook negative as inflation woes drag

The market segment outlook of UK non-life insurance remains negative as surging inflation, with Russia’s invasion of Ukraine exacerbating existing macroeconomic pressures, weigh on rating agencies’ sentiments.

“The initial expectations that a spike in inflation would be short-lived as a result of reopening the economy following lockdowns appear to have been optimistic, with the conflict in Ukraine exacerbating underlying macroeconomic factors,” according to AM Best.

Best’s new market segment report suggests that “inflation is likely to drive an increase in claims costs”, due to the rise in the replacement cost of underlying parts and increased labour costs.

The agency believes that the ability of insurers to weather these increased costs will depend on their ability to achieve commensurate rate rises, which it said, “may be suppressed” by high levels of competition in the personal motor and household sectors.

However, mitigating these negatives by some measure are the “continued positive rate momentum in commercial lines”, the agency noted.

“Although even here, prices are showing signs of deceleration in 2022.”

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