The UK motor insurance market delivered a net combined ratio (NCR) of 96.8% for 2017, according to analysis by accountancy firm EY.
The profitable result was a major improvement on the 109.4% NCR reported in 2016 as well as being the best since 1994 and the second best since records began in 1985.
According to EY’s Annual UK Motor Insurance Results research 2017’s strong figures were driven by premium increases, a fall in injury claims, and a readjustment of reserves for large claims due to the improved outlook for the Ogden discount rate
The Ogden rate for personal injury claims changed from 2.5% to minus 0.75% in March 2017.
Most insurers took a cautious view on the impact it would have on their 2016 results and boosted reserves. Last year EY put the hit at £3.5bn across all lines of business.
However, according to EY the government’s progress towards reforming the way the rate is set via the Civil Liability Bill means some insurers have released some of these reserves from their balance sheets.
The consultants estimated that without this effect the 2017 NCR would have been 1.6% higher.
Looking to the future EY repeated its prediction that 2018 would be a strong year but warned that 2019 did not look “as rosy”.
It set the expected NCR for 2018 at 97.7% noting that despite rates beginning to fall in the market, business written during 2017 will continue to perform well, and further reserve releases are possible if the Civil Liability Bill receives Royal Assent.
However, the specialists said they expected the current softening of premium rates will catch up with the changing claims environment. They forecast that the underwriting result would tip back into the red in 2019 with an NCR of 102.5%.
EY highlighted that while the whiplash reform element of the Civil Liability Bill should come into force the government was likely to put pressure on the market to pass savings directly to consumers, resulting in little net benefit for insurers.
And that reserve releases were also expected to return to normal levels.
Tony Sault, UK general insurance market lead at EY, commented: “After the disappointing result in 2016, motor insurers have experienced a reversal in fortunes, buoyed by the anticipated changes to the Ogden rate.
“This helped create the best underwriting result since the mid-1990s.”
He concluded: “While the outlook for 2018 looks bright as the industry continues to benefit from the premium rises during 2017, the market is now softening rapidly and we expect this to impact 2019 profits.”
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