UK Commercial General Insurance 2006

Content

• Chapter 1 Executive Summary
  • Profits slipped in the UK general insurance market in 2005, as soft market conditions took their toll on most lines of business
  • Soft market conditions were evident in many lines of business in 2005
  • The motor market led the decline with a reduction of 1.5 per cent
  • Property Finance and accident and health also went into decline
  • Liability and pecuniary loss continued to improve
  • Commercial insurance is largely distributed through intermediaries, however, there are signs of growth in other channels
  • Brokers still dominate the distribution of commercial lines insurance
  • Direct insurers hold a relatively small share of the commercial market
  • Banks and building societies remain small players in the commercial insurance market
  • The top 10 commercial insurers control almost 70 per cent of the market
  • The three largest commercial insurers RSA, Norwich Union and Zurich all have substantial Property Finance, commercial motor and liability accounts
  • Royal & SunAlliance has large motor, Property Finance and liability accounts, and saw growth in Risk Solutions and marine in 2005, amongst other areas
  • Norwich Union also has large Property Finance, motor and liability accounts and focuses on small and mid-sized businesses
  • Zurich's largest line was liability, which was hit by strong competition
  • The total commercial market will grow at a steady pace driven largely by the commercial liability sector, while group accident and health and commercial pecuniary loss are set to see steadier growth
  • The commercial liability market and the commercial pecuniary loss market are forecast to see the fastest growth between 2006 and 2011
  • Group accident and health and commercial motor are forecast to see steady growth
• Chapter 2 Introduction
  • What is this report about?
  • Who is the target reader?
  • How to use this report
• Chapter 3 Market Context
  • Introduction
  • Profits slipped in the UK general insurance market in 2005, as soft market conditions took their toll on most lines of business
  • Soft market conditions were evident in many lines of business in 2005
  • The motor market led the decline with a reduction of 1.5 per cent
  • Property Finance and accident and health also went into decline
  • Liability and pecuniary loss continued to improve
  • The commercial market suffered more than the personal market in 2005
  • Property Finance Finance and commercial motor led the commercial GWP contraction
  • The general insurance market's underwriting profit began to decline in 2005, as competition took its toll on most sectors
  • The accident and health market declined in 2005, driven by a large fall in accident sector premium income, in spite of robust growth in the group health sector
  • Group accident and health GWP increased, while the individual sector stagnated
  • The group health market drove the growth in the group accident and health sector
  • The accident and health market recorded an underwriting profit for the sixth consecutive year in 2005, but profitability declined
  • The proportion of the accident and health market written outside the company market has increased as Lloyd's and others have increased GWP, while company players have decreased
  • The liability market achieved marginal growth, and came very close to achieving underwriting profitability in 2005
  • Competition took its toll on the liability market, though increased penetration rates in some lines secured marginal growth overall
  • The liability market almost moved into a profit in 2005 due to strong NWP growth
  • Lloyd's and non-company players decrease in market share, but maintain a significant role in the liability market
  • The commercial and private motor markets contracted in 2005 as soft market conditions persisted
  • Sustained high levels of competition and sliding premium rates led to declines in GWP for both private and commercial motor
  • The fleet market held up in 2005, while commercial vehicle recorded the worst decline of any motor line
  • The motor market's underwriting losses increased in 2005 due to the poor performance of the private sector
  • The commercial motor market returned a much reduced underwriting profit in 2005
  • Lloyd's insurers have continued to reduce exposure to the motor market in 2005, a move pursued since 2001
  • The pecuniary loss market grew rapidly in 2005 and although profitability fell, it still returned a healthy underwriting result
  • The pecuniary loss market was worth 5.5 billion in 2005
  • Although the underwriting result dropped in 2005, pecuniary loss remains a profitable line
  • The market share and premium income of non-ABI companies and Lloyd's syndicates grew in 2005
  • Following a significant slowdown in 2004, the Property Finance market went into decline in 2005 due to the performance of Property Finance Finance
  • The market's overall decline resulted from a 7.5 per cent fall in Property Finance Finance GWP
  • Property Finance underwriting profits fell slightly in 2005, as the effect of increased competition began to have an impact
  • Profitability declined as growth in total outgoings outstripped growth in NWP
  • The Property Finance Finance underwriting result fell by 38.6 per cent in 2005
  • Lloyd's and other non-ABI companies accounted for an increasing share of the Property Finance insurance market in 2005
• Chapter 4 Customer Focus
  • Commercial insurance is largely distributed through intermediaries, however, there are signs of growth in other channels
  • Brokers still dominate the distribution of commercial lines insurance
  • Independent intermediaries are still the major distribution channel within commercial lines insurance
  • Direct insurers hold a relatively small share of the commercial market, however, growth is expected to pick up in terms of policy numbers
  • Direct insurers hold a small share of the commercial insurance market
  • Insurers are expecting to see growth in the direct channel
  • The growth of the direct channel will be limited by low average premium spends and buying behaviour
  • Banks and building societies remain small players in the commercial insurance market
  • There is potential for retailers and affinity groups to grow their market share, however, this is limited by the need for advice
  • imarket makes interactions between insurers and brokers more efficient and further progress is expected in the coming years
  • imarket is an internet portal for brokers that allows multiple quotes to be generated from one application form
  • imarket added two new carriers in 2005 and 2006
  • Further integration with software houses would benefit imarket
• Chapter 5 Competitive Dynamics
  • Introduction
  • Merger and acquisition interest among insurers was muted in 2006, but three new start-up underwriting agencies entered the market
  • M&A activity was muted among insurers, though failed bids and speculation show insurers' continued interest
  • A few deals were made in 2006 involving Lloyd's insurers
  • Acquisition activity has been more common among brokers
  • Three new start-up underwriting agencies entered the commercial insurance market in 2006, targeting the SME sector
  • Start-up ABC Insurance was bought by Liverpool Victoria
  • M4 Underwriting started writing business in June 2006 backed by Allianz
  • Start-up Arista Insurance will also target the SME market
  • A continued focus on cost reductions led to job cuts and offshoring in 2006
  • 2006 saw a number of high profile UK job cuts as insurers continued to move jobs abroad
  • Brokers are also showing interest in offshoring
  • The top 10 commercial insurers control almost 70 per cent of the market
  • The three largest commercial insurers RSA, Norwich Union and Zurich all have substantial Property Finance, commercial motor and liability accounts
  • Royal & SunAlliance has large motor, Property Finance and liability accounts, and saw growth in Risk Solutions and marine in 2005, amongst other areas
  • Norwich Union also has large Property Finance, motor and liability accounts and focuses on small and mid-sized businesses
  • Zurich's largest line was liability, which was hit by strong competition
  • AXA and Allianz emphasize the strong competition in commercial lines, but saw growth in selected areas
  • AXA experienced decreases in liability, but saw growth in group health
  • Allianz also found liability challenging
  • New Hampshire, BUPA and NFU Mutual are specialist commercial lines insurers
  • New Hampshire focuses on liability insurance
  • BUPA is exclusively a health insurer
  • NFU writes only liability and motor insurance in commercial lines
  • ACE and QBE were number eight and ten in the ranking of UK commercial insurers in 2005
  • ACE was ranked 8th among commercial insurers in 2005 and focuses almost exclusively on liability insurance in the UK
  • QBE is the 10th largest UK commercial insurer and focuses on commercial motor and liability insurance
  • Among commercial insurers ranked 11-20 some insurers are growing quickly, suggesting that they may one day threaten the position of the top 10
  • For most of the top 10 commercial insurers commercial business is the most important line
  • The commercial book dominates for all but one of the top 10 insurers that focus on both commercial and personal lines
  • Two of the top 10 commercial lines have no personal book to speak of
  • Norwich Union is the only insurer among the top 10 for which personal lines dominates
  • Profitability declined in the accident and health market, driven by increases in loss ratios in particular
  • Changes in FSA reporting categories have affected accident and health ratio comparisons
  • Many accident and health insurers saw loss ratios increase in 2005, but a clear divide is emerging between PMI and accident insurance specialists
  • Norwich Union, BCWA and Legal & General all recorded double digit loss ratio growth
  • Stonebridge, SimplyHealth and Fortis achieved impressive loss ratio reductions
  • Expense ratios rose by 3.0 per cent in 2005, with accident specialists driving this increase
  • While PMI providers succeeded in reducing their expense ratios, accident and travel insurance specialists more often suffered an increase
  • PMI providers BUPA and WPA had the best expense ratios in 2005
  • Norwich Union, Legal & General and New Hampshire achieved the best expense ratio reductions
  • BCWA and Stonebridge recorded large expense ratio increases
  • The combined ratio of the top A&H providers rose by 5.3 per cent in 2005, with the majority of PMI and accident providers contributing to this performance
  • The companies with the best ratio metrics were from the accident and travel sectors, not the PMI market
  • New Hampshire, Fortis and SimplyHealth all made impressive combined ratio improvements in 2005
  • BCWA had a terrible year in 2005, however GEFI, Clinicare and Groupama all suffered big combined ratio increases as well
  • Liability insurers recorded improvements in profitability in 2005, as many insurers combined premium income growth with a reduction in combined ratio
  • Changes in FSA reporting categories have affected liability ratio comparisons
  • Over half of the top 20 liability insurers increased their premium income in 2005, with the majority also experiencing reductions in loss ratio
  • Many companies combined increases in premium income with improvements in loss ratio
  • Only three liability insurers saw an increase in loss ratio in 2005
  • The largest liability insurers generally have loss ratios of around 60 per cent, while smaller insurers have more varied loss ratios
  • The majority of liability insurers saw increases in their expense ratios in 2005
  • XL and Catlin saw the highest increases in expense ratios in 2005, while many other insurers saw smaller increases
  • However, a few insurers bucked this trend and managed to reduce their expense ratio
  • Over half of the top 20 liability insurers improved their profitability in 2005, athough reporting has had an impact on these figures
  • Of the top 20 liability insurers 13 returned combined ratios below 100 per cent in 2005
  • Some companies, however, still suffer from unprofitable liability books
  • Soft market conditions led to both falling premiums and reductions in profitability for many of the top 20 motor insurers
  • The loss ratio of the top 20 motor insurers increased in 2005 and soft market conditions were evident as many companies suffered declining premium income
  • Many insurers saw worsening loss ratios and reductions in income, suggesting that some have accepted reduced premiums
  • Three companies saw a decline in premium income but improved loss ratio
  • Six companies managed to improve their loss ratios while growing their motor books
  • First Alternative was the only top 20 company that combined an increase in premium income with a growing loss ratio
  • The expense ratio of the top 20 motor insurers saw a small deterioration in 2005
  • Only a few insurers saw substantial changes to their expense ratios in 2005
  • Soft market conditions led many insurers with a combined ratio already over 100 per cent to suffer further reductions in profitability
  • 11 of the top 20 motor insurers failed to return an underwriting profit in 2005
  • Many companies combined increasing unprofitability with falling premium income, suggesting that some players have cut their premiums to maintain market share
  • 11 of the top 20 returned an underwriting loss and seven of these further increased their combined ratios in 2005
  • Nine companies recorded underwriting profits in 2005, with five of these seeing improvements on their 2004 results
  • Several players have dealt well with the soft cycle so far and are set to continue riding the cycle in the future
  • Pecuniary loss is a profitable line with an average combined ratio below 100 per cent however, high expense ratios are a problem for a sub-group of insurer
  • Changes in FSA reporting categories have affected pecuniary loss ratio comparisons
  • In general the loss ratio for pecuniary loss is lower than other lines
  • The influence of the expense ratio or the loss ratio on pecuniary loss insurers' profitability varies depending on their main line of business
  • Insurers that mainly write personal creditor business have low loss ratios and high expense ratios
  • Insurers that specialize in commercial pecuniary loss generally have low expense ratios
  • The remainder of the top 20, with expense ratios around 40-60 per cent, underwrite a variety of pecuniary loss lines
  • Just over half of the top 20 pecuniary loss insurers recorded underwriting profits in 2005, making it a profitable business overall
  • Pecuniary loss is a profitable business for many insurers
  • However, a group of companies struggled to secure a profit
  • Property Finance insurance operating conditions improved slightly in 2005, although many players saw their combined ratios increase
  • The loss ratio of the top 20 Property Finance insurers improved in 2005
  • Nine of the top 20 actually recorded an increase in loss ratio, with significant increases from several players
  • Ecclesiastical, Direct Line and Allianz all recorded large loss ratio increases
  • St. Andrew's and Norwich Union all achieved big reductions in loss ratio, going against the market trend of rising claims costs
  • Liverpool Victoria's loss ratio was the worst of the Property Finance sector's top 20 players
  • The expense ratio of the top 20 Property Finance insurers increased by 1.8 percentage points in 2005
  • Direct writers and mutual insurance companies had the best expense ratios
  • CIS, Royal & SunAlliance and Zurich all saw significant increases in expense ratios
  • Lloyds TSB and NIG achieved large reductions in their expense ratios
  • The combined ratio of the top 20 Property Finance insurers fell marginally by 0.4 per cent in 2005, driven by the performance of just under half of this peer group
  • 11 of the top 20 Property Finance insurers recorded an increase in combined ratio
  • Reflecting softer market conditions, Legal & General moved into an underwriting loss
  • Direct Line, Allianz and Ecclesiastical saw the biggest increase in combined ratio
  • Lloyds TSB, St. Andrew's and Norwich Union all achieved double digit figure combined ratio reductions
• Chapter 6 Future Decoded
  • Introduction
  • The total commercial market will grow at a steady pace driven largely by the commercial liability sector, while group accident and health and commercial pecuniary loss are set to see steadier growth
  • The commercial liability market and the commercial pecuniary loss market are forecast to see the fastest growth between 2006 and 2011
  • Group accident and health and commercial motor are forecast to see steady growth
  • The accident and health market will record slow growth, as the group sector continues to outperform the individual sector
  • The group sector will manage to sustain marginal policyholder number growth, while increases in premium inflation are recorded
  • The group accident and health market is forecast to grow by a compound annual rate of 4.8 per cent between 2006 and 2011
  • Liability is expected to remain competitive until the end of 2007, after which GWP growth is forecast to pick up
  • Competition continued to dominate the liability market in 2006, putting pressure on premium rates
  • The turn of the cycle is expected in late 2007
  • Commercial motor GWP is expected to recover in the second half of 2007, with stronger growth to come
  • Rate increases are expected to lead to an improvement in operating conditions in the commercial motor market
  • The commercial motor market is forecast to reach a value of 4.1 billion by 2011
  • The commercial pecuniary loss market is forecast to grow to a value of 1.7 billion by 2011
  • The forecast for pecuniary loss is based on historical trends
  • The commercial pecuniary loss market is forecast to grow by 10.0 per cent on a compound annual basis between 2006 and 2011
  • The Property Finance Finance market is seeing price competition, however it is expected to turn in 2008 and reach a value of 5.5 billion by 2011
  • The Property Finance Finance market is seeing intense competition
  • Datamonitor forecasts that the Property Finance Finance insurance market will reach 5.5 billion by 2011
• Chapter 7 Appendix
  • Methodology
  • 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
  • 2005 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 Finance
  • Total Property Finance Finance
  • 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 Finance
  • Definitions of ABI terms
  • Brokers
  • National brokers
  • Other intermediaries & brokers
  • Chain brokers & telebrokers
  • Direct
  • Other company agents
  • Utilities/retailers/affinity groups
  • Company staff
  • Banks/building societies
  • Written premiums
  • Current readings
  • Future readings
  • Do you need more information?
  • Datamonitor Financial Services Consulting
  • SPP writing team
• List of Tables
  • Table 1: Total general insurance GWP by line of business 2001-5
  • Table 2: Commercial general insurance market GWP and year-on-year growth, split by sector 2001-5
  • Table 3: Total general insurance underwriting result, by line of business, 1995-2005
  • Table 4: Accident & health GWP split between individual and group, 2001-5
  • Table 5: Accident and health GWP by sector, 2001-5
  • Table 6: Total accident and health underwriting result, 1995-2005
  • Table 7: Accident and Health market GWP split by UK company market players and Lloyd's/Non-company market, 1995-2005
  • Table 8: General liability market GWP split by line of business, 2001-5
  • Table 9: Total general liability underwriting result, 1995-2005
  • Table 10: General liability GWP split between ABI members and Lloyd's / Other, 1995-2005
  • Table 11: Motor insurance GWP split between private and commercial business, 2001-5
  • Table 12: Commercial motor insurance GWP split by line, 2001-5
  • Table 13: Total motor underwriting account, 2001-5
  • Table 14: Commercial motor underwriting account, 1995-2005
  • Table 15: Motor GWP split between ABI members, Lloyd's / Other, 1995-2005
  • Table 16: Pecuniary loss market GWP by line of business, 2001-5
  • Table 17: Pecuniary loss underwriting account, 2001-5
  • Table 18: Pecuniary loss GWP split between ABI members and Lloyd's / Other, 1995-2005
  • Table 19: Property Finance insurance GWP split between household and commercial business, 2001-5
  • Table 20: Property Finance underwriting account, 1995-2005
  • Table 21: Property Finance Finance underwriting result, 1995-2005
  • Table 22: Property Finance GWP split between ABI members and Lloyd's / Other, 1995-2005
  • Table 23: Market share of distribution channels in the commercial general insurance market, 2002-5
  • Table 24: Top 10 commercial competitors by GWP and market share, 2005
  • Table 25: GWP of selected fast growing commercial insurance players ranked 11-20
  • Table 26: Split between commercial and personal business for the top 10 commercial insurers, 2005
  • Table 27: Premium income compared to loss ratio, top 20 A&H insurers, 2004-5
  • Table 28: Expense ratio of the top 20 A&H insurers, 2004-5
  • Table 29: Premium income compared to combined ratio, top 20 A&H insurers, 2004-5
  • Table 30: Loss ratio compared to premium income for the top 20 liability insurers, 2004-5
  • Table 31: Expense ratio compared to premium income for the top 20 liability insurers, 2004-5
  • Table 32: Combined ratio compared to premium income for the top 20 liability insurers, 2004-5
  • Table 33: Loss ratio compared to premium income for the top 20 motor insurers, 2004-5
  • Table 34: Expense ratio compared to premium income for the top 20 motor insurers, 2004-5
  • Table 35: Premium income compared to combined ratio for the top 20 motor insurers, 2004-5
  • Table 36: Loss and expense ratios compared to GWP for the top 20 pecuniary loss insurers, 2005
  • Table 37: Combined ratio compared to GWP for the top 20 pecuniary loss insurers, 2005
  • Table 38: Premium income compared to loss ratio, top 20 Property Finance insurers, 2004-5
  • Table 39: Expense ratio of the top 20 Property Finance insurers, 2004-5
  • Table 40: Premium income compared to combined ratio, top 20 Property Finance insurers, 2004-5
  • Table 41: Forecast commercial general insurance GWP, 2001-11f
  • Table 42: Group accident and health GWP forecast, 2001-11
  • Table 43: Forecast general liability GWP, 2001-11
  • Table 44: Commercial motor market GWP forecast. 2001-2011f
  • Table 45: GWP forecast for commercial pecuniary loss, 2001-11
  • Table 46: Forecast Property Finance Finance GWP, 2001-11f
• List of Figures
  • Figure 1: Soft market conditions were evident in many lines in 2005
  • Figure 2: Commercial motor and Property Finance saw declines in GWP in 2005
  • Figure 3: In 2005, group accident and health grew faster than the historical five year trend, while Property Finance Finance fell well below
  • Figure 4: The underwriting profit of the general insurance market deteriorated in 2005 as the market slipped off its peak
  • Figure 5: The group accident and health sector picked up in 2005, recording strong GWP growth
  • Figure 6: Individual and group accident, and 'other' accident and health business GWP fell in 2005
  • Figure 7: The accident and health underwriting result declined in 2005, but the market still returned a comfortable profit
  • Figure 8: Lloyd's and other non-ABI companies win market share from the company market and account for the accident and health market's expansion
  • Figure 9: The liability market achieved moderate growth, in spite of a decline in employers' liability
  • Figure 10: The underwriting result for general liability has improved sharply since 2001
  • Figure 11: Company players won market share from Lloyd's players as the liability market saw little growth
  • Figure 12: Both private and commercial motor GWP continued to decline and have stagnated since 2001
  • Figure 13: The performance of the commercial motor market's sub sectors diverged in 2005
  • Figure 14: Motor underwriting losses increased in 2005
  • Figure 15: Underwriting profits suffer in the commercial motor market in 2005
  • Figure 16: Lloyd's has continued to reduce exposure to motor, with some former Lloyd's players writing from offshore locations accounting for the increase in other
  • Figure 17: Pecuniary loss is a profitable line, and the profit recorded in 2005 is near the record for the decade
  • Figure 18: The majority of pecuniary loss insurance is underwritten by ABI members
  • Figure 19: Property Finance Finance GWP declined in 2005, having slowed significantly in 2004
  • Figure 20: Profits fell slightly in 2005, as the effect of increased competition began to have an impact
  • Figure 21: The Property Finance Finance insurance underwriting result fell by over a third in 2005
  • Figure 22: The vast majority of Property Finance business remains with ABI companies but the amount written outside the company market has grown
  • Figure 23: National brokers dominate the distribution of commercial insurance
  • Figure 24: imarket generates a number of quotes, while the user only has to input the risk details once
  • Figure 25: The top 10 commercial insurers together accounted for 68.2 per cent of the market in 2005
  • Figure 26: There are some fast growing commercial insurers in the group ranked 11-20
  • Figure 27: Commercial business was more important than personal business for most of the top 10 commercial insurers in 2005
  • Figure 28: Many PMI players in the accident and health sector recorded an increase in their loss ratio
  • Figure 29: Expense ratio changes varied in the accident and health sector in 2005, but many PMI providers' ratios deteriorated slightly
  • Figure 30: Most liability insurers achieved improvements in loss ratio in 2005 and many also saw their premium income grow
  • Figure 31: The majority of the top 20 liability insurers saw increases in their expense ratios in 2005
  • Figure 32: The majority of liability insurers improved their combined ratios in 2005
  • Figure 33: Softening market conditions clearly affected the loss ratio of the top motor insurers
  • Figure 34: Most motor insurers saw only relatively small changes to their expense ratios in 2005
  • Figure 35: The four largest motor insurers have combined ratios below the top 20 average
  • Figure 36: Pecuniary loss insurers generally have low loss ratios, but expense ratios vary by line of business
  • Figure 37: On average Property Finance insurers increased premium income in 2005, but also saw their loss ratios rise
  • Figure 38: With the exception of a few companies like Lloyds TSB, NIG and Ecclesiastical, most Property Finance insurance providers saw expense ratios rise in 2005
  • Figure 39: Key to the relative importance of forecast variables
  • Figure 40: The total commercial insurance market is expected to grow between 2006 and 2011
  • Figure 41: Key variables influencing GWP in the accident and health market, 2006f-11
  • Figure 42: The group accident and health market is forecast to achieve a compound annual growth rate of 4.8% between 2006 and 2011
  • Figure 43: Key variables affecting liability GWP, 2006-11
  • Figure 44: The liability market is expected to see strong growth between 2008 and 2010
  • Figure 45: Key variables affecting commercial motor GWP, 2006e-11f
  • Figure 46: GWP is forecast to begin growing again in 2007 as the motor market recovers
  • Figure 47: Commercial pecuniary loss is forecast to grow by a compound annual growth rate of 10.0 per cent between 2006 and 2011
  • Figure 48: Key variables affecting Property Finance Finance GWP, 2006e-11f
  • Figure 49: Property Finance Finance GWP will decline until 2008 when rates are expected to rise again