German, French and UK motor insurers should face an uphill struggle for profitability, and may not reach breakeven on their underwriting results before 2012 at best in the U.K., likely later in Germany and France. This is according to a new Standard & Poor’s report entitled “Motor Insurers in Germany, France and the UK, Face a Long road to Recovery”.
Here is S&P’s release :
“This is because they operate in mature and highly competitive markets, where competition for customers has depressed insurance premiums in Germany and France, while in the U.K. premium increases could not keep track with rising claims,” said Standard & Poor’s credit analyst Johannes Bender.
“This has dampened underwriting performance, known in the industry as technical results, in all three markets.
“Meanwhile, given the currently strained capital market conditions, we expect companies will find it difficult to compensate these poor technical results with income from investing the premiums they collect from insured parties,” said Mr. Bender.
The report says that motor insurers in all three markets have been able to increase their prices recently, which has lead to signs of recovery in underwriting performance. However, the markets still face challenges and we therefore think it unlikely that motor insurers will over the next two years be able to achieve combined loss and expense ratios much below 100%, the industry’s measure of profitability that is calculated by taking the sum of incurred losses and expenses and then dividing them by earned premium. In Germany, for example, we expect motor insurers will expand premiums modestly 2011 and 2012 through new pricing strategies, which should benefit their technical results, the report says. Yet, we don’t expect this will be enough to prevent further technical losses given the rise they are seeing in winter claims as well as ongoing competitive downward pressure on insurance tariffs. We also don’t expect the recovery in pricing will be enough to offer German insurers such a pronounced cyclical upswing in the coming years as they experienced in the past cyclical upturn.
Similarly, our outlook for the U.K. market is only mildly positive, mainly because insurers are experiencing a rise in bodily injury claims. Companies’ have responded to these mounting claims primarily by instigating hefty price rises, which, along with other underwriting initiatives, gave underlying performance a boost in 2010. We expect that this upward earnings trend will persist in 2011 as recent price increases flow through into premiums. Yet, we doubt the sector will achieve overall profitability until 2012 and don’t believe price rises offer a long-term solution to compensate personal injury claims inflation.
In France, too, market players have responded to rising bodily injury claims by hiking insurance prices. High numbers of market players, in particular the significant presence of mutual insurers, are keeping up the competitive pressure. Nonetheless, given the low GDP forecast for France and likely subdued investment income, we see stringent pricing as the main source of growth in this market.
Source : S&P
