UK non-life outlooks improving on favourable conditions & easing inflationary pressures: Fitch
According to Fitch Ratings, the London and UK company markets will be bolstered in 2024 by easing inflationary pressures, pricing conditions remaining strong, as well as favourable reinvestment yields.
The agency has revised it’s sector outlook for the company market to improving from deteriorating.
In 2023, UK non-life insurance pricing witnessed a major shift, and Fitch expects further improvement to be seen in 2024, particularly in the household sector.
However, despite Fitch forecasting pricing improvement in motor to tail off, the agency noted that it still thinks that improved profitability will earn through in 2024.
Fitch said: “We expect underwriting profitability to remain challenging and heightened risks persist, particularly in respect of inflation and the cost of living despite the improving sector outlook.
At the same time, Fitch’s sector outlook for the London insurance market is also improving, with favourable pricing conditions expected to continue into 2024, heavily supported by strong market discipline.
Fitch also highlighted how it believes the improved pricing will translate into better underlying underwriting results.
But, the agency is expecting headwinds related to inflation and interest rate movements to ease, while the negative impact of climate change is adequately priced in for 2024.
Fitch also noted that it believes that inflation in the UK peaked in late 2022 and the company’s most recent Global Economic
Outlook forecasts UK inflation to be 5% at end-2023, falling to 3% by end-2024 and then 2.5% at end-2025.
Moreover, motor insurers have also built up significant reserve buffers during the very low claims frequency that was experienced in the motor market during the various COVID-19-related lockdowns.
Likewise, Fitch noted that many London market insurers retain reserves at significantly above best estimates.
Adding: “We expect insurers will need to use up some of these buffers in 2023 and 2024 to offset the pressures
from claims inflation.”
Graham Coutts, Senior Director, said: “Fitch expects UK non-life company market insurers’ profitability to improve in 2024 as premium rate increases offset significant claims inflation in both home and motor insurance. We believe London market insurers will be able to offset the challenging economic outlook with strong pricing improvements and increasing reinvestment yields.”
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