S&P calls for rate increase

Europe

Rating agency Standard & Poor’s has warned that the UK motor insurers need to increase their premium rates if the industry wants to continue the period of stability and profitability it has enjoyed over the past few years. The industry’s reported financial results for 2005 showed, according to S&P, a respectable combined ratio of 102%. However the agency noted that the accident (or current) year results represent a significant adverse development in profitability in the market as a whole. The sector’s profitability in 2005 was largely due to the release of prior-year reserves according to S&P credit analyst David Laxton who said that this level of reserve releases cannot be sustained at the current level and the underlying trend of an increased accident-year combined ratio will inevitably show through, meaning the sector will fail to make an adequate return on capital. The motor sector continues to be the largest business line in the UK insurance market. In 2005, 50 insurance companies wrote £11,238mn worth of business, with the Lloyd’s market accounting for a further £895mn.