Profitability challenges for personal lines – Moody’s

Moody’s Investors Service has given the UK P/C sector a stable outlook, but highlighted looming profitability challenges for the personal lines market.

Its P/C Insurance – UK 2021 Outlook suggests personal lines profitability will be challenged in 2021, while commercial insurers are expected to benefit from sustained price increases.

The research stated: “Personal lines orientated insurers like Admiral, Direct Line and Hastings have reported good levels of profitability at H1 20, benefiting from a coronavirus-related decline in claims frequency, although increased weather losses and lower investment returns have broadly affected the sector.

“The results of insurers with larger UK commercial books like Aviva, AXA, Allianz and Zurich have been negatively impacted by business interruption claims.

“The UK P/C sector has historically generated healthy profitability with average operating margins of 8-9% and we expect commercial insurers’ underlying profitability to continue to benefit from sustained price increases.

“Personal lines and especially motor insurers may have benefited in 2020 but their profitability, albeit solid, will be challenged over the next 12 to 18 months by pricing pressure and increasing claims inflation in addition to low interest rates.”

Moody’s said the stable outlook for the UK P/C sector was based on its robust capitalisation with coronavirus commercial losses contained, and the view that the industry’s underlying operating performance will remain good, with a limited impact from Brexit.

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