UK Commercial General Insurance 2007

Published by: Datamonitor

Published: Dec. 3, 2007 - 144 Pages

Table of Contents

OVERVIEW

Catalyst

Summary

Executive summary

Total general insurance GWP declined in 2006

The general liability, commercial property, commercial motor and pecuniary loss markets recorded a fall in GWP in 2006

The total general liability market contracted in 2006, but it moved into an underwriting profit

Competitive conditions in the liability market resulted in lower premium income

The total general insurance market moved further into profit in 2006

Brokers continued to dominate the distribution of commercial insurance

National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers

The largest three UK commercial insurers all recorded a decline in commercial insurance GWP in 2006

Royal & SunAlliance retained its position as the largest UK commercial insurance provider in 2006

Norwich Union recorded a fall of 3.3% in commercial insurance GWP

Zurich saw premium income fall across all of its commercial books in 2006

Commercial general insurance GWP is forecast to grow by a CAGR of 5.3% between 2007 and 2012

Table of Contents

Table of figures

Table of tables

Market context

Introduction

Total general insurance GWP declined in 2006

The motor insurance market recorded its fourth consecutive year of decline

Property insurance GWP rose very slightly in 2006

General liability recorded a significant fall in GWP

Accident and health was the only business line to record strong growth

Pecuniary loss GWP fell by 3.2%

The general liability, commercial property, commercial motor and pecuniary loss markets recorded a fall in GWP in 2006

The total general insurance market moved further into profit in 2006

The accident and health market performed well in 2006, with growth in GWP and strong growth in underwriting profit

Individual and group accident and health GWP grew in 2006

During 2006, individual health GWP growth slowed and premium income fell in the individual accident sector

The group health sector recorded GWP growth of 3.2% in 2006

The accident and health market witnessed underwriting profits grow substantially in 2006

Lloyd's and other non-company market players increased their share of the accident and health insurance market in 2006

The total general liability market contracted in 2006, but it moved into an underwriting profit

Competitive conditions in the liability market resulted in lower premium income

The liability underwriting result improved for a fifth consecutive year in 2006, and the market finally achieved profitability

The company market increased its exposure to the liability insurance market in 2006 compared to Lloyd's

The motor insurance market softened in 2006 however underwriting profits in the commercial sector improved

Both private and commercial motor markets contributed to the decline in motor premium income in 2006

Commercial motor insurance premium income declined in 2006, due to the soft market

Underwriting losses grew in the motor market in 2006 as private motor losses exceeded profits in the commercial motor market

The commercial motor underwriting result increased in 2006

Lloyd's insurers saw their exposure to motor insurance decrease in 2006

Total pecuniary loss GWP fell in 2006 with decreases in the personal and commercial sector, however underwriting profits increased

The pecuniary loss market declined by an estimated 3.2% in 2006

Pecuniary loss continues to be a profitable line of business, with profits increasing to £691m in 2006

Lloyd's and other non-company market players increased their exposure to pecuniary loss insurance in 2006

Property GWP fell in 2006, led by the soft commercial property sector where underwriting profits dropped

Household insurance GWP increased in 2006, while commercial property GWP fell

Property underwriting profits continued to decline during 2006 but the market remains profitable

The commercial property underwriting result decreased in 2006 for a second consecutive year

ABI members underwrote the vast majority of property insurance in 2006

Customer focus

Introduction

Brokers continued to dominate the distribution of commercial insurance

National brokers have lost distribution market share to the direct channel, chain brokers and telebrokers

The direct channel increased its share of commercial insurance GWP by 1% in 2006

Affinity groups remain a small channel for the distribution of commercial insurance

Banks and building societies continue to play a small role in the distribution of commercial insurance

Competitive dynamics

Introduction

The market saw a number of mergers and acquisitions, many involving brokers

AXA acquired numerous commercial brokers in 2007, reinforcing its position in the SME sector

Groupama acquired a majority stake in Lark Group in August 2007

Direct Line began to offer business insurance in 2007

Equity Insurance Group recorded a large number of small-scale acquisitions

Towergate continued to acquire numerous brokers in 2007

Other brokers acquiring included Jelf, Oval, Aon and JLT

A number of insurers announced job cuts in 2007 in order to make cost savings

The largest three UK commercial insurers all recorded a decline in commercial insurance GWP in 2006

Royal & SunAlliance retained its position as the largest UK commercial insurance provider in 2006

Norwich Union recorded a fall of 3.3% in commercial insurance GWP

Zurich saw premium income fall across all of its commercial books in 2006

AXA recorded the highest increase in GWP of any top 10 UK commercial insurer in 2006

Allianz recorded a significant decline in commercial insurance GWP in 2006 as its commercial property book contracted

New Hampshire recorded a 1.7% decline in commercial GWP in 2006

BUPA suffered a 6.4% decline in GWP as conditions worsened in the group accident and health market

ACE recorded GWP growth of 2.6%

NFU Mutual recorded a strong set of results in 2006, increasing commercial motor, liability and property GWP

NIG recorded the second highest GWP growth rate among the top 10 UK commercial insurers

Softening market conditions meant numerous insurers ranked between 11 and 20 saw GWP decline, although a handful saw GWP growth

A number of insurers ranked between 11 and 20 saw GWP decline due to the poor market conditions

Groupama, Standard Life, Ecclesiastical and CNA saw commercial GWP increase in 2006

Most of the top 10 commercial insurers had a good mix of commercial and personal business in 2006

The profitability of the top 10 accident and health insurers deteriorated in 2006 due to increases in loss ratios

The top 10 accident and health insurers recorded an average loss ratio of 63.7% in 2006, with the majority seeing an increase in their loss ratio

The average loss ratio of 63.7% in 2006 was a 3.5 percentage point increase from 2005

Standard Life combined a growing book of business with a smaller loss ratio

Combined Insurance Company of America was the only top 10 accident and health insurer to see a loss ratio reduction other than Standard Life

Five insurers saw loss ratios increase at the same time as their books grew

New Hampshire and BUPA saw loss ratios increase while their books declined in size

The top 10 accident and health insurers recorded an average expense ratio of 29.9% in 2006

Three of the top 10 accident and health insurers saw their expense ratios decrease while their books grew

Combined Insurance Company of America saw its book shrink and its expense ratios reduce

Norwich Union, SimplyHealth and AXA saw expense ratios increase as their books expanded

Two insurers saw their expense ratios increase alongside a shrinking book of business

The top 10 accident and health insurers recorded an average combined ratio of 93.6% in 2006, although two of the biggest players saw their ratios move above 100%

The top 10 accident and health insurers achieved an average combined ratio of 93.6% in 2006

Groupama and Standard Life both saw their combined ratios decrease in 2006 and their books grow, but Groupama's ratio remained above 100%

Combined Insurance Company of America's loss ratio fell by 5.8 percentage points

Six of the top 10 insurers saw their combined ratios increase in 2006

The performance of the top 10 liability insurers was mixed in 2006 with some seeing better profits while a few players recorded significant losses

The average loss ratio of the top 10 UK liability insurers rose by 9.7 percentage points in 2006, but Norwich Union and QBE recorded large reductions

The average loss ratio for the top 10 liability insurers rose by 9.7 percentage points in 2006

Norwich Union and QBE saw the largest improvements in their loss ratios

Zurich saw the largest deterioration in its loss ratio in 2006

The average expense ratio of the top 10 liability insurers increased by 3.2 percentage points in 2006, with New Hampshire recording the largest increase

The average expense ratio rose by 3.2 percentage points in 2006 to 30.5%

New Hampshire recorded the largest increase in its expense ratio but remained one of the most efficient players

Royal & SunAlliance, AXA and Allianz were the least efficient UK liability insurers in 2006

The average combined ratio of the top 10 UK liability insurers increased in 2006, with Zurich and AXA seeing the two biggest increases

The average combined ratio increased in 2006 by 12.9 percentage points to 102.1%

Norwich Union and QBE bucked the trend and recorded improvements in their loss ratios

Six of the top 10 UK liability insurers recorded combined ratios below 100% in 2006

Four insurers recorded combined ratios in excess of 100% in 2006

The top 10 motor insurers made the move into profitability in 2006 on the back of reductions in losses and expenses

The average loss ratio among the top 10 UK motor insurance providers declined in 2006 with AXA, Norwich Union and Churchill recording the biggest improvements

In 2006, the average loss ratio of the top 10 UK motor insurers fell by 3.3 percentage points to 71.1%

AXA, Norwich Union and Churchill recorded the strongest loss ratio reductions

Four insurers recorded loss ratio deterioration

The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006, with Churchill, AXA, NIG and Royal & SunAlliance recording above-average reductions

The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006

Churchill, AXA, NIG and Royal & SunAlliance recorded above-average expense ratio decline

Norwich Union, Zurich and NFU Mutual recorded the highest increases in their expense ratios

The average combined ratio of the top 10 motor insurers fell by four percentage points in 2006, with AXA and Churchill seeing significant declines

The average combined ratio of the top 10 motor insurers declined by four percentage points in 2006

AXA and Churchill recorded significant reductions in combined ratio in 2006

NIG, Direct Line and Zurich recorded combined ratio increases

The top 10 pecuniary loss insurers saw their profitability increase

Pecuniary loss combined ratios increased as expense ratios rose and loss ratios fell

The average loss ratio of the top 10 pecuniary loss insurers declined by 0.2 percentage points to 29.4% in 2006

Norwich Union and Lloyds TSB achieved strong loss ratio reductions

Direct Line and Pinnacle recorded the highest loss ratio increases

The average expense ratio of the top 10 pecuniary loss insurers increased to 65.3% in 2006, with Direct Line, Allianz and St Andrew's seeing the highest individual increases

The average expense ratio of the top 10 pecuniary loss insurers increased by 1.8 percentage points to 65.3% in 2006

GEFI, Norwich Union and UK Insurance recorded double-digit increases in their expense ratios

Direct Line, Allianz and St Andrew's achieved strong expense ratio reductions

Combined ratios increased among the leading pecuniary loss insurers in 2006

The average combined ratio among the top 10 pecuniary loss insurers rose by 1.6 percentage points in 2006

Allianz, Direct Line, St Andrew's and Lloyds TSB reduced their pecuniary loss combined ratios

GEFI, UK Insurance and Pinnacle all experienced increases in their combined ratios

Combined ratios rose for the top 10 property insurers in 2006 due to rising expenses and claims however most players remained in profitable territory

The average loss ratio of the top 10 property insurers increased by 0.1 percentage points in 2006, with Direct Line, Zurich and Norwich Union recording the biggest reductions

The average loss ratio of the top 10 property insurers increased by 0.1 percentage points

Norwich Union, Direct Line and Zurich recorded strong loss ratio reductions

St Andrew's, NIG and Royal & SunAlliance recorded high loss ratio increases

The average expense ratio of the top 10 property insurers increased in 2006, with Norwich Union and AXA recording the largest individual increases

The average expense ratio of the top 10 property insurers rose by 1.4 percentage points in 2006

Norwich Union, AXA and Lloyds TSB saw their expense ratios increase, but they achieved GWP growth

Four of the top 10 property insurers achieved expense ratio reductions

The average combined ratio of the top 10 property insurers rose in 2006, with Norwich Union, AXA and NIG seeing the largest increases

Among the top 10 UK property insurers, the average combined ratio rose by 1.5 percentage points in 2006

Norwich Union, AXA and NIG recorded high combined ratio growth

Three insurers were able to defy the property market trend and reduce their combined ratios

Future decoded

Introduction

Commercial general insurance GWP is forecast to grow by a CAGR of 5.3% between 2007 and 2012

The liability and group A&H markets are forecast to record strong GWP growth, however growth in the commercial property and pecuniary loss sectors will be lower

The liability and group accident and health markets are forecast to achieve strong growth

Commercial motor GWP growth is forecast to improve, particularly over 2008-10

The property and pecuniary loss markets are forecast to record the lowest GWP growth rates in the commercial general insurance market

Rises in premium rates and policy numbers are expected to lead to growth in group A&H

The group A&H market is expected to grow as a result of increases in policy numbers and premium rates

The group accident and health insurance market is forecast to grow to a value of £2.8 billion in 2012

The UK commercial liability market is forecast to grow from mid-2008

Competitive pricing continued to weigh on the liability market in 2007, but conditions are expected to improve

The UK liability market is forecast to reach a value of £8.2 billion in 2012

The commercial motor market is forecast to harden in 2008 and reach £4.1 billion by 2012

Premium rate increases are expected to lead to an improvement in the commercial motor market

The UK commercial motor insurance market is forecast to reach a value of £4.1 billion in 2012

The commercial property insurance market entered a hardening cycle late in 2007

Underlying claims inflation and the threat of severe weather events will lead to price rises in commercial property insurance

The commercial property insurance market is forecast to reach a value of £5.7 billion in 2012

UK commercial pecuniary loss GWP is forecast to achieve annual growth of 3.9% between 2007-12f

The forecast for pecuniary loss is based on historical trends

APPENDIX

2005-6 definitions for lines of business

Accident & health

Medical expenses

HealthCare cash plan

Travel

Personal accident or sickness

Motor

Total private motor

Total commercial motor

Private motor comprehensive

Private motor non-comprehensive

Motorcycle

Fleets

Commercial vehicles (non-fleet)

Property

Total commercial property

Household and domestic all risks.

Consequential loss (i.e. business interruption)

Financial/Pecuniary loss business

Total personal financial loss business

Total commercial financial loss business

Legal expenses

Fidelity and contract guarantee

Liability business

Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages)

Professional indemnity (including directors' and officers' liability and errors and omissions liability)

Public and products liability

Mixed commercial package

Total personal

Total commercial

Pre-2005 definitions for lines of business

Accident and health

Individual accident and health

Group accident and health

General liability

Motor

Pecuniary loss

Total pecuniary loss figures

Property

Premium income measures

Earned premiums

Gross Premium

Net Premium

Written premiums

2005 FSA Return changes

Major changes in FSA Return categories and their impact

Market size

Changes in market size information

Market size methodology

Lloyd's players and underwriting result figures

Competitor data

GWP versus GEP reporting

Total personal and total commercial business

Home-Foreign, overseas and facultative reinsurance business

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Total general insurance GWP by line of business, 2002-6

Table 2: Commercial general insurance market GWP and year-on-year growth, split by sector 2002-6

Table 3: Total general insurance underwriting result, by line of business, 1996-2006

Table 4: Accident & health GWP split between individual and group, 2002-6

Table 5: Accident and health GWP by sector, 2002-6

Table 6: Total accident & health underwriting result, 1996-2006

Table 7: Accident and health GWP split between ABI members and Lloyd's/Other, 1996-2006

Table 8: UK commercial liability market, 2002-06 (£m)

Table 9: Total general liability underwriting result, 1996-2006

Table 10: Liability GWP split between ABI members and Lloyd's/Other, 1996-2006

Table 11: Total motor market GWP by private and commercial segment, 2002-6

Table 12: Commercial motor GWP, by line of business, 2002-6

Table 13: Total motor underwriting account, 1996-2006

Table 14: Commercial motor underwriting result, 1996-2006

Table 15: Motor GWP split between ABI members and Lloyd's/other, 1996-2006

Table 16: Pecuniary loss market GWP by line of business, 2002-6

Table 17: Total pecuniary loss underwriting account, 1996-2006

Table 18: Pecuniary loss GWP split between ABI members and Lloyd's/Other, 1996-2006

Table 19: Property insurance GWP split between household and commercial business, 2002-6

Table 20: Total property underwriting account, 1996-2006

Table 21: Commercial property underwriting result, 1996-2006

Table 22: Property GWP split between ABI members and Lloyd's/other, 1996-2006

Table 23: Market share of distribution channels in the commercial general insurance market, 2003-6

Table 24: GWP of UK commercial insurers ranked 11-20, 2005-6

Table 25: Split between commercial and personal business for the top 10 commercial insurers, 2006

Table 26: Change in premium income compared to change in loss ratio for the top 10 UK accident and health insurers, 2005-06

Table 27: Change in premium income compared to change in expense ratio for the top 10 UK accident and health insurers, 2005-06

Table 28: Change in premium income compared to change in combined ratio for the top 10 UK accident and health insurers, 2005-06

Table 29: Change in premium income compared to change in loss ratio for the top 10 UK liability insurers, 2005-06

Table 30: Change in premium income compared to change in expense ratio for the top 10 UK liability insurers, 2005-06

Table 31: Change in premium income compared to change in combined ratio for the top 10 UK liability insurers, 2005-06

Table 32: Change in premium income compared to change in loss ratio, top 10 UK motor insurers, 2005-6

Table 33: Change in premium income compared to change in expense ratio, top 10 UK motor insurers, 2005-6

Table 34: Change in premium income compared to change in combined ratio, top 10 UK motor insurers, 2005-6

Table 35: Change in premium income compared to change in loss ratio for the top 10 UK pecuniary loss insurers, 2005-06

Table 36: Change in premium income compared to change in expense ratio for the top 10 UK pecuniary loss insurers, 2005-06

Table 37: Premium income compared to change in combined ratio for the top 10 UK pecuniary loss insurers, 2005-06

Table 38: Premium income compared to change in loss ratio for the top 10 UK property insurers, 2005-06

Table 39: Change in premium income compared to change in expense ratio among the top 10 property insurers, 2005-06

Table 40: Change in premium income compared to change in combined ratio for the top 10 UK property insurers, 2005-06

Table 41: Forecast commercial general insurance GWP, 2002-12f

Table 42: Key variables affecting the group accident and health market GWP forecast, 2002-12f

Table 43: Group accident and health GWP forecast, 2002-12f (£m)

Table 44: Key variables affecting commercial liability insurance GWP, 2007e-12f

Table 45: UK commercial liability insurance premium income, 2002-12f (£m)

Table 46: Key variables affecting commercial motor insurance GWP, 2002-12f

Table 47: UK commercial motor insurance GWP forecast, 2002-12f (£m)

Table 48: Key variables affecting commercial property insurance GWP, 2007e-12f

Table 49: UK commercial property insurance premium income, 2002-12f (£m)

Table 50: UK pecuniary loss insurance premium income, 2002-12f (£m)

List of Figures

Figure 1: General insurance GWP declined in 2006

Figure 2: The general liability, commercial property and commercial motor markets recorded a fall in GWP in 2006

Figure 3: The total general insurance market moved further into profit in 2006

Figure 4: Growth in the individual accident and health sector slowed in 2005 and 2006

Figure 5: During 2006, individual health GWP growth slowed and premium income fell in the individual accident sector

Figure 6: Growth in profitability returned to the accident and health market in 2006

Figure 7: Lloyd's and other non-company market players increased their share of the UK accident and health insurance market in 2006

Figure 8: Falling premium rates in most liability lines meant lower GWP across the liability market

Figure 9: The total general liability underwriting result increased in 2006

Figure 10: The company market, Lloyd's and other non-company market players all saw liability insurance GWP decline in 2006

Figure 11: Both the private and commercial motor markets declined in 2006

Figure 12: The decline in commercial motor income was the result of reductions in both fleet and commercial vehicle insurance

Figure 13: The motor insurance market continued to make an underwriting loss in 2006

Figure 14: The commercial motor underwriting result increased in 2006

Figure 15: Lloyd's insurers saw their exposure to motor insurance decrease in 2006

Figure 16: The pecuniary loss market saw its underwriting profit increase in 2006

Figure 17: Lloyd's and other non-company market players increased their exposure to pecuniary loss insurance in 2006

Figure 18: Household insurance GWP increased in 2006, while commercial property GWP fell

Figure 19: Property insurance underwriting profits fell in 2006 to £517m

Figure 20: The commercial property underwriting result decreased in 2006

Figure 21: The company market underwrote the vast majority of property insurance in 2006

Figure 22: National brokers dominate the distribution of commercial general insurance in the UK in terms of GWP

Figure 23: Groupama and Standard Life grew significantly on the back of strong performances in the group accident and health market in 2006

Figure 24: Royal & SunAlliance recorded the highest commercial GWP in 2006, although Norwich Union was larger overall

Figure 25: Only two of the top 10 UK accident and health insurers achieved better loss ratios in 2006

Figure 26: Numerous UK accident and health insurers saw their expense ratios increase in 2006

Figure 27: Six of the top 10 UK accident and health insurers recorded higher combined ratios in 2006

Figure 28: Norwich Union achieved the biggest reduction in its liability loss ratio in 2006

Figure 29: New Hampshire saw the largest increase in its expense ratio in 2006

Figure 30: Most of the top 10 UK liability insurers saw their combined ratio deteriorate in 2006

Figure 31: While the average loss ratio of the top 10 UK motor insurers fell in 2006, NIG and Direct Line saw increases in their ratios

Figure 32: Norwich Union saw the biggest increase in private motor expense ratio in 2006

Figure 33: NIG saw the biggest increase in combined ratio in 2006

Figure 34: A number of UK pecuniary loss insurers recorded significant GWP decline in 2006, although some were also able to decrease their loss ratios as a result

Figure 35: Direct Line achieved strong GWP growth and reduced its expense ratio in 2006, although fellow RBS subsidiary UK Insurance did not fare as well

Figure 36: Allianz, Direct Line and St Andrew's achieved the strongest pecuniary loss combined ratio reductions in 2006, largely through decreasing their expense ratios

Figure 37: Direct Line, Zurich and Norwich Union saw the best decreases in loss ratio in 2006

Figure 38: St Andrew's was the only insurer to successfully reduce its expense ratio and at the same time increase its property insurance GWP in 2006

Figure 39: Direct Line and Churchill saw the biggest reductions in combined ratio in 2006

Figure 40: The liability and group A&H markets are forecast to record strong GWP growth, however growth in the commercial property and pecuniary loss sectors will be lower

Figure 41: A&H GWP is forecast to increase by 5.1% per annum between 2007e and 2012f

Figure 42: The UK liability market is expected to harden in 2008

Figure 43: The commercial motor market is predicted to harden in 2008, resulting in an increase in GWP

Figure 44: The commercial property insurance market will experience steady growth from 2007-12

Figure 45: UK commercial pecuniary loss GWP is forecast to achieve annual growth of 3.9% between 2007-12f

Abstract

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