UK P&C insurers push rate, but struggle to clear inflation: Moody’s
The UK’s P&C insurance sector may have made strides on pricing, but hasn’t yet got the leg up on cost increases needed to assure a longer-term profit outlook, analysts at Moody's said in retaining a negative outlook for the sector.
Insurance rates may have surged, but price growth “lags inflationary cost increases” in personal lines and has “peaked” in commercial, still ahead of the peak damage that claims inflation could yet do to long-tail reserves, Moody’s said of its negative outlook. Reinsurance costs have offered no reprieve.
In personal lines, rates have risen in 2023, but earnings will remain under pressure because of underpriced business written in 2022 and into 2023, particularly in motor. “If claims inflation persists, pricing adequacy may again come into question,” Moody’s warned.
Motor took double digit price increases in H1 2023, but cumulatively still lagged CPI inflation by 15 percentage points from the pre-pandemic December 2019 reading. “We expect the accrued gap between pricing and claims costs to close in late 2023 or early 2024 for most companies, provided claims inflation continues to recede and price increases continue at their current pace,” analysts wrote. Underpriced business written in prior periods will expire at around the same time to help margins as well.
Homeowners insurance has been less dramatic, but will suffer continued margin pinch on rising claims costs, Moody’s said.
Pricing in commercial lines has slowed after a stronger early reaction to inflation, but inflation is not handing out any byes. Commercial lines face the likelihood of increased reserving on long tailed business on account of accumulating claims inflation, Moody’s analysts wrote. “We expect margins to start narrowing over the outlook period.”
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