UK non-life insurance outlook hiked to stable as inflation tames

Credit rating agency AM Best hiked its outlook on the UK’s non-life insurance segment from negative to stable on faith that reduced inflation tames the threat from claims and could ease the pricing challenge. 

“With inflation closer to its target, insurers would be better positioned to adjust their pricing assumptions, which should ultimately benefit the segment’s underwriting results,” analysts wrote, citing headline inflation readings now closer to the central bank’s 2% target. 

Personal lines have been enjoying “significant price corrections” which analysts think should “pave the way for close to breakeven underwriting results, a happy about-face from two consecutive years during which the average combined ratio exceeded 110% in both motor and homeowners. 

“Improvements in underwriting results are expected to be driven by significant rate increases, projected this year to be in the double digits, combined with a reduction in the level of claims inflation compared with 2023,” analysts wrote. 

Commercial and specialty sectors are already there and conditions are “expected to remain favourable.” Lines continue to benefit from “positive rate momentum.” Rate adequacy plus “good” terms and conditions seem set to ensure “solid underwriting margins.” 

Reinsurance cost is a headwind, either as an outright cost or as increased retentions have opened the door to increased earnings volatility, analysts noted.  

Elsewhere on the P&L, higher interest rates should ensure “robust” investment returns, analysts added. The interest rate outlook might also be supportive of underwriting results via reserve discounting under IFRS17, analysts said. 

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