Ratings agency says industry has "defied expectations"

Fitch Ratings has said it will maintain a stable outlook on the UK non-life insurance sector as insurers remain on the path of underwriting discipline, despite challenging market conditions.

In a special report published today, the agency comments that insurers have defied expectations through 2006 and into 2007 with strong results against a background of softening rates and intense competition.

This has signalled hopes, it said, that "some of the lessons of previous soft cycles may have been learned," although it remains imperative for insurers to continue to retain their discipline at all stages of the underwriting cycle.

David Stephenson, Associate Director in Fitch's Insurance Group said: "Insurers have demonstrated effective capital management to put them in a position of strength at this point of the cycle.

"The natural catastrophe activity during 2007 has been a sobering reminder of the need to maintain prudence in pricing and reserving. However, we expect that a majority of insurers should be able to demonstrate better results than in previous soft market cycles."

Despite the generally soft rating environment seen in early 2007, some rate hardening has been observed in some business lines during 2007. This augurs well, the company said, for prospects of market profitability for the full financial year.

Improvements in risk management and catastrophe modelling are also expected to contribute positively, although insurers continue to face the pressures of an evolving distribution landscape and claims inflation that is outpacing premium rate increases in various classes of business.