Net worldwide premium income of the UK insurance sector fell 18 per cent in 2008 to £215.3bn according to new research today from International Financial Services London (IFSL), the independent organisation promoting UK financial services worldwide. IFSL’s report Insurance 2009 states that insurance premiums will remain subdued in 2009 with a recovery likely to begin in 2010.
The shrinkage of premiums written in 2008 was due to a fall in long-term premiums which typically account for around 80 per cent of insurance business in the UK. As the economy slowed, demand for long-term cover fell placing downward pressure on premium rates. According to IFSL’s report, the insurance industry is exposed to the economic downturn on the assets side through a fall in investment returns and on the liabilities side through rising claims. So far the extent of losses on both sides has been limited and most insurance companies have enough capital to absorb losses.
UK long-term insurance premiums declined by nearly a quarter in 2008 to £168.1bn. Occupational pensions premiums saw the biggest decline, followed by life insurance. New long-term premium income in the first nine months of 2009 is down 35 per cent on the same period in 2008. General insurance premiums on the other hand increased by 8 per cent during 2008 to £47.2bn mainly a result of an increase in business from overseas.
Gross premiums on the London Market were conservatively estimated at £24.7bn in 2008, up 13 per cent on the previous year. The one-quarter fall in marine P&I Clubs premiums during the year was more than offset by an increase in insurance companies’ and Lloyd’s premium income. Lloyd’s generated 63 per cent of London Market premiums with the company market accounting for a third and P&I Clubs the remainder. London is a key centre for international insurance and reinsurance, particularly for marine and aviation business and reinsurance.
The insurance sector makes an important contribution to the UK economy. It accounts for 1.6 per cent of GDP and provides employment for 325,000 people including 50,000 in the London Market. Insurance net exports increased 48 per cent in 2008 to a record £8.0bn. Funds under management of UK insurance companies totalled £1.5 trillion, almost double those of any other European country.
Marko Maslakovic, IFSL’s Senior Economist said: “The economic slowdown has shown that the UK insurance sector is sufficiently capitalised. Insurance companies have minor exposure to mortgage-related assets and losses on insurance coverage have been limited to specialised lines of business. The insurance sector has acted as a stabilising factor at a time of considerable volatility in the broader financial markets”.
