UK Commercial Property Insurance 2009

Published by: Datamonitor

Published: Oct. 26, 2009

Table of Contents

Overview

Catalyst

Summary

Executive Summary

The market grew slightly as insurers put through small rate increases

The market was worth £4.3 billion 2008

Commercial property insurers suffered from a high COR in 2008, net of reserve releases

The sector made a profit after the effects of reserve releases

2009 has been a benign year for claims costs so far

2009 is shaping up to be another benign year for claims costs

Large national brokers continue to dominate commercial insurance distribution

Independent insurance intermediaries of all types retained their majority market share in 2008

Allchurches and Travelers both gained market share

Allchurches experienced a 0.5 percentage points growth in its market share to 4.4% of the commercial property market

Travelers witnessed a significant 14% growth in GWP

Aviva, RSA, Zurich, AXA and Allianz continue to hold the top 5 market positions

Aviva was the market leader in 2008

Zurich retained its third place ranking

AXA experienced a 4.1% decline in GWP, taking its market share to 11.1% in 2008

Allianz's market share for 2008 was 7.2%, making it the fifth largest player

ACE was the ninth largest commercial property insurer in 2008

Underwriting losses will decrease as the market hardens

The commercial property market is predicted to be worth £5.9 billion by 2013

Table of Contents

Table of figures

Table of tables

Market Context

Introduction

The market grew slightly as insurers put through small rate increases

The market was worth £4.3 billion 2008

In terms of real growth, the market contracted by 2.1% in 2008

Commercial property insurers suffered from a high COR in 2008, net of reserve releases

The sector made a profit after the effects of reserve releases

The COR, excluding reserve releases, reached 115% in 2008

Reserve releases expanded significantly throughout 2008

Commercial property insurers made sizeable reserve releases in 2008, higher than 2007 levels

2009 has been a benign year for claims costs so far

2009 is shaping up to be another benign year for claims costs

Commercial property claims costs resulting from fire and theft increased in 2008

The AXA Business Crime Index has shown a marked increase of recessionary crime

More than half of total claims costs in commercial property arose from fires in 2008

Modern methods of construction, amongst other things, have lead to the increase in fire losses

The 'Approved Document B (Fire safety)' has been one of few steps in recent years to mitigate fire risks

Automatic fire protection systems that generate false alarms may prompt higher premiums

Weather related commercial property claims decreased significantly in 2008

Business interruption claims costs following fire grew by 21.7% in 2008

The cost of commercial property insurance theft claims increased marginally in 2008

The average value of a theft claim increased to £4,515 in 2008 from £4,223

Insurers are pressuring the government for improvements in flood defenses

The 2007 floods were a catalyst for insurers seeking government assistance to limit flood risk exposure

The Draft Floods and Water Management Bill has been warmly welcomed by the industry

The 2009 Budget commitments showed some signs of the government listening to the insurance industry

The UK Climate Projections provides valuable information and data about climate change

The Ordinance Survey's data-rich resources are also of much use to the insurance industry

However, insurers still feel that the government should spend more on flood defenses

There is a risk that the Statement of Principles will not be renewed unless more government action is taken

Distribution

Introduction

Large national brokers continue to dominate commercial insurance distribution

Independent insurance intermediaries of all types retained their majority market share in 2008

Electronic distribution is gathering pace and insurers believe that it will become more prevalent

Direct players account for a small but growing portion of the commercial general insurance market

Corporate partnerships have maintained only a small presence in the commercial insurance market

Banks and building societies distribute negligible amounts of commercial general insurance

30% of SMEs would consider purchasing their insurance policy from a bank or building society

Brokers remained the dominant distribution channel to target SMEs in H1 2008

Competitive Dynamics

Introduction

Allchurches and Travelers both gained market share

Allchurches experienced a 0.5 percentage points growth in its market share to 4.4% of the commercial property market

Travelers witnessed a significant 14% growth in GWP

Aviva, RSA, Zurich, AXA and Allianz continue to hold the top 5 market positions

Aviva was the market leader in 2008

Zurich retained its third place ranking

AXA experienced a 4.1% decline in GWP, taking its market share to 11.1% in 2008

Allianz's market share for 2008 was 7.2%, making it the fifth largest player

ACE was the ninth largest commercial property insurer in 2008

Travelers, Zurich, RBS, Allianz and Aviva beat the market average COR, after allowing for reserve releases

Acquisitions by brokers continued, albeit at a slower pace than previous years

AXA has continued to increase its presence in the UK commercial insurance market through its broking arm Bluefin

Giles acquired numerous commercial brokers in 2008

Oval completed 12 acquisitions in the 12 months to June 2008

Cullum Capital Ventures continued with its acquisition strategy in 2008 and 2009

JLT acquired Ingham Underwriting

Future Decoded

Introduction

Underwriting losses will decrease as the market hardens

The market will grow slowly in 2009 and harden significantly thereafter

The commercial property market is predicted to be worth £5.9 billion by 2013

Losses, net of reserve releases, will fall as the market hardens

APPENDIX

Definitions

ABI members

Accident year combined ratio

Brokers

Earned premiums

Gross premiums

Net premium

Reported year combined ratio

Prior years' reserve development

Written premiums

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Total commercial property insurance GWP, 1995-2008 (£m)

Table 2: Commercial property premium real growth rates and average inflation, 1996-2008 (%)

Table 3: Commercial property underwriting profit/loss, 1998-2008 (£m)

Table 4: Accident year CORs for total property insurance and commercial property insurance, 2005-08 (%)

Table 5: Accident and reported year COR, underwriting results and reserve developments, commercial property insurance market, 2005-08 (%)

Table 6: Gross incurred commercial property insurance claims by peril, H1 2008-09 (£m)

Table 7: Gross incurred commercial property insurance claims by peril, 2004-08 (£m)

Table 8: Proportion of gross incurred commercial property insurance claims by peril, 2004-08 (%)

Table 9: Commercial property insurance weather claims costs, 2004-2008 (£m)

Table 10: Cost of business interruption claims by cause, 2004-08 (£m)

Table 11: Total cost of commercial property insurance theft claims, 2004-08 (£m)

Table 12: Volume and average value of property theft claims, 2004-08

Table 13: Market share of distribution channels in the commercial general insurance market, 2004-08 (%)

Table 14: GWP and market share of the top 10 UK commercial property insurance groups, 2007-08

Table 15: Reported year combined ratio and underwriting profit/loss for the top 10 commercial property insurance groups, 2008

Table 16: Key variables affecting GWP, 2009f-13f

Table 17: Forecast of UK commercial property insurance market GWP, 2009-13f

Table 18: Forecast of accident year COR, commercial property insurance market, 2009-13f (%)

List of Figures

Figure 1: The sector reported an underwriting profit in 2008; however, this was only made possible by releases of prior years' reserves

Figure 2: 2008 was the first time the market experienced positive premium growth since 2004

Figure 3: Strong competition within the market has kept real premium growth negative since 2005

Figure 4: The sector reported an underwriting profit in 2008; however, this was only made possible by releases of prior years' reserves

Figure 5: The COR, net of reserve releases for commercial property insurance, reached 115% in 2008

Figure 6: In 2008, there was significant reserve release in order to improve the reported year COR

Figure 7: H1 2009 claims costs are slightly lower than H1 2008

Figure 8: Claims arising from fire and explosions following fires increased the most in 2008

Figure 9: Fire claims accounted for the largest claims bill in the commercial property insurance market

Figure 10: Weather claims costs declined dramatically in 2008

Figure 11: Weather-related business interruption claims costs fell in 2008 while fire-related business interruption costs increased

Figure 12: Commercial property theft claims reached a value of £175m in 2008

Figure 13: The number of theft claims increased significantly in 2008

Figure 14: UKCP09 is a readily available source of information about various aspects of UK climate change

Figure 15: Brokers still remain the dominant route to market for commercial insurers in the UK

Figure 16: 82% of SMEs purchase their commercial insurance through brokers

Figure 17: Travelers and Allchurches gained market share in 2008

Figure 18: Travelers, Zurich, RBS, Allianz and Aviva beat the market average COR, after allowing for prior years' reserve releases

Figure 19: Premium rates increases will occur in order to improve the underwriting profitability of insurers

Figure 20: The COR for the commercial property market will decline throughout the forecast period

Abstract

• An examination of market size, growth and profitability.
• Analysis of the key drivers of claims inflation.
• Market share and combined ratio data for the largest commercial property insurers.
• Forecasts of market size and profitability to 2013.

• Understand the direction in which the commercial property insurance market is moving in terms of premium rates, profitability and future claims.
• Assess the market share of the major distribution channels, the key players and the latest competitor developments.
• Gain insight into the views and opinions of some of the leading industry executives.

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