UK Commercial General Insurance 2009

Published by: Datamonitor

Published: Nov. 9, 2009

Table of Contents

Overview

Catalyst

Summary

Executive Summary

Commercial lines is running a high pure year COR

The industry trading result held up well

Commercial is running a high pure year COR

2009 will see a dip in the industry trading result and some changes to groups' commercial books

The rate of market growth will increase over the next five years as the market hardens

Table of Contents

Table of figures

Table of tables

Market context

Introduction

Conditions are deteriorating for insurers

The market contracted in 2008 as insurers continued to compete hard

Insurers pulled capacity from suretyship insurance

Motor and property insurance continue to dominate the UK non-life insurance market

Lloyd's of London underwrites around £2 billion of UK insurance

Motor, liability, property and pecuniary loss have driven the COR up in recent years

Pecuniary loss is a strong source of underwriting profit

Insurers are being hit by falling investment income

A drop in investment income put additional pressure on insurers' margins in 2008

Insurers saw an estimated trading result of 9% of NWP in 2008

Reserve releases are propping up reported profits

Insurers propped up their reported underwriting results with around £1 billion in reserve releases

Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability insurance

The soft market has hit home in commercial lines

Growth in commercial lines remains subdued by strong competition

The commercial market is growing slowly

Commercial lines is running a high COR, net of reserve releases

ABI data show a commercial lines profit, after allowing for reserve releases

Distribution

Introduction

National brokers increased their share of the commercial insurance market in 2008

National brokers saw a significant increase in market share as other brokers saw their market share contract

The direct channel experienced a small decline in market share in 2008

Partnerships with affinities have only generated a small proportion of commercial insurance GWP

Commercial insurance GWP distributed through banks and building societies remains negligible

Less traditional forms of arrangement are more common among smaller SMEs

Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs

Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs

Price is the key factor behind SME insurance purchasing decisions

SMEs are sensitive to price, regardless of their size

SMEs that purchase online appear to be the most price sensitive

High levels of retention go along with high levels of satisfaction

SMEs are generally happy with their insurance provider

SMEs tend to prefer longstanding relationships with their providers, making an initial pitch critical

A large proportion of SMEs are unlikely to switch to a new provider

More SMEs considered a change of provider in 2009 than in 2008

A variety of companies, from different industries, believe they will change their provider over the next year

SMEs that use the internet to arrange their insurance are the most likely to search out a new provider

Of those SMEs willing to buy insurance online or via the telephone, liability products were the most popular

Competitive Dynamics

Introduction

Aviva remains the market leader

Aviva remained the clear leader in the UK commercial insurance market in 2008 with a 13.1% market share

RSA, Zurich, AXA and Allianz occupy positions two to five

RSA has adopted a strategy of selective capacity withdrawal and premium rate increases

Zurich remained the third largest UK commercial insurer in 2008 with a market share of 9.8%

AXA remained one of the larger top 10 commercial players in 2008, with a market share of 6.9%

Allianz maintained its market share of 7.1% in 2008

AIG was the 6th largest commercial insurance group

NFU Mutual and QBE gained share

NFU bucked the trend, reporting a 3.3% increase in its commercial lines business GWP in 2008

QBE grew its commercial lines business by 8.5% to £416.1m

RBS's 2.8% market share was largely due to its sizable presence in the commercial property insurance market

ACE's 2.4% market share made it the tenth largest commercial insurer in the UK market

Future Decoded

Introduction

The industry trading result will be challenging in 2009

The 2009 results will show some significant re-shaping of players' books

Profits are expected to dip in 2009

Investment returns will fall

Reserve releases are expected to continue in 2009

Profits are likely to be impacted by a sharp rise in the pecuniary loss COR in 2009 and 2010

Commercial lines is forecast to grow to £18 billion by 2013

Adverse economic conditions will trim growth across the market early in the forecast

The liability insurance market will see growth close to the market compound average

Premium rate inflation will drive growth in the commercial motor insurance market

Commercial property insurance GWP will experience the fastest growth of all commercial insurance lines

Economic recovery and premium rate growth will increase commercial pecuniary loss GWP

An improvement in the economy and premium rates will result in higher liability insurance premium income

Premium rates will drive liability GWP growth, though higher turnover and headcount will generate growth as well

The liability market will reach a value of £7.6 billion in 2013 under expected conditions

Growth in commercial motor insurance GWP will mainly come from higher premium rates

Premium rate increases will be the primary factor driving growth in the commercial motor insurance market

The UK commercial motor insurance market is forecast to reach a value of £3.8 billion in 2013

Commercial property premium income growth will be stronger in the early years of the forecast

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

Commercial pecuniary loss GWP is expected to grow, but not regain recent highs

Premium income is expected to remain below £1 billion, despite continual growth

APPENDIX

Definitions

ABI members

Accident year combined ratio

Bancassurers

Brokers

Brandassurers

Channel

Direct insurer/writer

Earned premiums

Gross premium

Net premium

Platform

Reported year combined ratio

Reserve development

Suretyship insurance

Written premiums

Additional data

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

Overview

Table 1: Annual growth in general insurance market, 2000-08 (%)

Table 2: GWP by line of business, 2000-08 (£m)

Table 3: UK insurance market split by ABI members and Lloyd's of London, 2008 (£m)

Table 4: Total market combined ratio, 2004-08 (%)

Table 5: Accident year CORs by line of business, 2004-08 (%)

Table 6: Underwriting result by line of business, 1998-2008 (£m)

Table 7: Underwriting result, investment income and trading result as a percentage of NWP (worldwide business of UK insurers), 2000-08

Table 8: Underwriting result, investment income and trading result as a percentage of NWP (UK business), 2000-08

Table 9: Commercial insurance GWP by line of business, 2005-08 (£m)

Table 10: Accident year COR, commercial lines, 2005-08 (%)

Table 11: Underwriting result, commercial lines, 1998-2008 (£m)

Table 12: Market share of the distribution channels in the commercial general market, 1999-2008 (%)

Table 13: Q: "What were the most important reasons for choosing your commercial insurance provider?"

Table 14: Q: "How long have you been with your current insurance provider?"

Table 15: Q: "Do you think you will change your commercial insurance provider in the next 12 months?"

Table 16: Top 10 UK commercial general insurance groups by market share and GWP, 2005-08

Table 17: Forecast commercial general insurance GWP, 1997-2013f

Table 18: Key variables affecting commercial liability insurance GWP, 2009f-13f

Table 19: Forecast of UK commercial liability insurance GWP, 2005-13f (£m)

Table 20: Key variables affecting commercial motor insurance GWP, 2009f-13f

Table 21: Forecast of UK commercial motor insurance GWP, 2009-13f (£m)

Table 22: Key variables affecting GWP, 2009f-13f

Table 23: Forecast of UK commercial property insurance premium income, 2005-13f (£m)

Table 24: Forecast of UK commercial pecuniary loss insurance premium income, 2005-13f (£m)

Table 25: Total UK pecuniary loss underwriting account, 1998-2008

Table 26: Total UK property underwriting account, 1998-2008

Table 27: Total UK household underwriting account, 1998-2008

Table 28: Total UK commercial property underwriting account, 1998-2008

Table 29: Total UK motor underwriting account, 1998-2008

Table 30: Total UK personal motor underwriting account, 1998-2008

Table 31: UK commercial motor underwriting account, 1998-2008

Table 32: UK liability underwriting account, 1998-2008

Table 33: UK accident & health underwriting account, 1998-2008

List of Figures

Figure 1: The industry has experienced slow or negative growth in recent years due to strong competition

Figure 2: Increases in the liability and property sectors were offset by falls in motor, A&H and pecuniary loss

Figure 3: Motor and property continue to be the two largest lines of business

Figure 4: Lloyd's of London underwrites around 5% of the UK insurance market

Figure 5: The combined ratio for the total market bottomed out in the years 2004-06 but it has increased to 108% in 2008

Figure 6: Motor, liability, property and pecuniary loss have seen increasing CORs

Figure 7: Pecuniary loss and A&H are a steady source of profits

Figure 8: Investment income as a percentage of premiums fell to an all time low in 2008 due to the financial crisis

Figure 9: The trading result for UK business fell in 2008 however it was broadly in line with the across-the-cycle trading result

Figure 10: Insurers have bolstered reported profits with massive reserve releases in the years 2005-08

Figure 11: Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability

Figure 12: Slow premium growth has led to deterioration in the commercial lines COR

Figure 13: General liability is the largest line of commercial insurance

Figure 14: Commercial lines combined ratios have increased across the board

Figure 15: Commercial lines underwriting peaked in 2004-6 and has now started deteriorating

Figure 16: National brokers witnessed a significant increase of their share in the UK commercial insurance market in 2008

Figure 17: Brokers have the highest penetration among medium-sized firms

Figure 18: Micro SMEs are most comfortable with arranging their cover over the telephone

Figure 19: Price was almost matched in importance by service as a criteria for selecting a provider

Figure 20: Internet clients are the most price-sensitive

Figure 21: Satisfaction levels in the market remain high

Figure 22: Very few SMEs have changed their provider in the last two years

Figure 23: Companies in the education sector are the most likely to seek out a new quote in the next 12 months

Figure 24: Clients which arrange their insurance through the internet are the most likely to search for another provider

Figure 25: SMEs show the greatest willingness to purchase public and employers' liability insurance online

Figure 26: QBE and NFU Mutual increased market share in 2008

Figure 27: Insurers are likely to see a sharp rise in the pecuniary loss COR judging from the effects of the last recession in 1990

Figure 28: Commercial insurance GWP is forecast to grow throughout the forecast period as the market hardens

Figure 29: Liability GWP is expected to fall in 2009 and return to growth thereafter

Figure 30: Premium rates are expected to drive commercial motor insurance growth in 2009 and 2010

Figure 31: Commercial property is set to harden in order to bring the COR down

Figure 32: The commercial pecuniary loss market is forecast to grow again, though at a lower rate

Abstract

• Data on the size, structure and profitability of the total non-life market and the commercial lines sector.
• Analysis of the total premiums and market share for the largest commercial lines insurance groups.
• A discussion of the main factors affecting the general insurance market in the future along with forecasts of market size to 2013.

• Understand the segmentation of the UK general insurance market and the differing profitability by class of business.
• Benchmark your premium income against that of your competitors and understand the drivers of growth in their businesses.
• Gain insight into the future development of the market in terms of competitors, major issues and market size.

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