General Insurance Article - Competition is at all time high in UK general insurance

•The challenging economic environment will continue to suppress investment income and limit revenue growth for the UK’s general insurers.

•Despite the tough market conditions our outlook for the industry is stable – we expect that rate rises and expense reductions (due to increased efficiency) will help insurers sustain profitability levels. Insurers will continue to focus on reducing expenses by cutting staff or marketing costs, restructuring to remove regional duplication, or portfolio realignment.

•A key risk for the sector is the UK economy’s slow recovery which will lead to lower demand for general insurance products. Another key threat is a deeper-than-expected recession in the euro zone due to its negative effect on demand an

 Moody's have today released their outlook for the UK general insurance sector. The outlook remains stable for the UK general insurance sector reflecting Moody's expectation that rate rises and expense reductions will mitigate challenging operating conditions over the next 12 to 18 months.
 In summary, Moody's stable outlook reflects key expectations, which are already reflected in the current UK general insurance ratings:
 » Economic Environment is unfavourable for general insurers. Expectations that the UK’s economic growth will remain sluggish over the next few years, translate into less demand for general insurance products. Additionally, persistently low interest rates continue to curtail earnings, while exposure to the euro area market turmoil further increases risks of softening demand for insurance products. In the face of weak demand and low investment yields, insurers have increased their focus on underwriting profitability.
 » Rate rises and expense reductions are needed to stabilise performance trends. All-time-high levels of competition, rising claims inflation and depleting reserve buffers challenge underwriting profitability, which should lead to upward pressure on premiums across most lines of business. We believe that rate increases, together with material expense reductions can stabilise, or even modestly improve underwriting profitability.
 » Civil, legal and regulatory reforms are positive, but do not change the outlook. Market reforms have the ability to reduce claims inflation, particularly for motor insurers, but elevate short-term pricing risk. We consider the underlying principles and economic capital based measures of Solvency II to be superior to the current regulatory regime, but the delay in implementation is counter-productive for the largest players.
 To read Moody's Outlook for UK General Insurance please click below:

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