The soft market conditions have heavily deteriorated over the past five years with losses increasing from £674m in 1995 to £3.5bn in 1999, according to the Association of British Insurers' (ABI) trends report.
The annual Insurance Facts, Figures and Trends shows the lacklustre underwriting performance was exacerbated by poor investment income results, which fell from £4.9bn in 1995 to £4.4bn in 1999. This resulted in a trading profit of £.0.9bn. Worldwide trading profit as a percentage of premium also dropped from 11.8% to 2.6%.
The report showed that motor was the biggest earner in the UK general insurance market, with a total gross premium of more than £9bn, followed by property at £7.6bn, accident and health at £4.2bn, pecuniary loss at £3.4bn and liability at £2.6bn.
Although there are 353 insurance companies authorised by the Department of Trade and Industry to write motor business, only about 67 companies, plus 16 Lloyd's syndicates, actively do business. The companies take 85% of the market, with Lloyd's accounting for the remainder.
Despite reporting the largest gross premium in the general insurance market, motor claims increased by 39% over the five years and total premiums grew by only 19%.
The report said the UK motor insurance market was very large, with more than 27 million vehicles on the road, and very competitive. The ten largest motor insurers have a 72% market share, a small share in comparison to the same sector in other European countries. This competitiveness is related to the launch of direct writing 15 years ago and telephone sales.
The non-motor sectors have had a mixed five years: they recorded underwriting profits from 1995 to 1997 then suffered underwriting losses in 1998 and 1999. The 1999 loss was due to a premium income decline of nearly 3%, despite a 3% reduction in claims costs.
The property market was very competitive, with the ten biggest property insurers holding 76% of the market, and this has caused consistently poor underwriting results. There are 474 authorised UK property insurers but only 109 are active in the market.
Liability has 87 UK companies writing business, which had relatively stable premiums from 1995 to 1999 but made losses that were at least 12% of these premiums every year. Of the liability classes, employers liability generated the most premium income at £709m, of which the top five companies wrote 69%.
Accident and health is divided into the distinct personal accident and private medical classes. There are 588 companies authorised to write business but the market is fairly concentrated, with the ten biggest companies taking 84% of the business. They enjoyed a rise in premium income of 35%, including a 5% rise in 1999 that equalled £3bn, of which private medical insurance accounted for £1.6bn.
The pecuniary loss market has made underwriting profits throughout the five years, increasing its premium income by 42% and keeping claims costs stable between 1995 and 1997. The report said pecuniary loss was closely linked to the economy, which had been buoyant during the same period, and was becoming more important as people's financial sophistication increased.