But EY forecasting group warns that competition and overcapacity will put pressure on rates
General insurers will reap the greatest benefit from UK economic growth, according to a forecasting group backed by accounting firm EY.
But the EY ITEM Club also warned in its winter 2014/spring 2015 report that competition and an over-abundance of underwriting capacity are likely to keep prices and profit margins under pressure.
It also expects to see mergers and acquisitions (M&A) in the specialty insurance market.
The ITEM Club expects the UK to be one of the winners from the recent fall in energy prices and so has increased its GDP growth forecast for 2015 to 2.9% from its previous estimate of 2.4%.
Of all sectors of the insurance industry, the forecasting group expects general insurers in particular to benefit. EY UK insurance partner Mark Robertson said: “General insurers stand to reap the greatest benefit from the renewed momentum of the wider UK economy.”
But he also warned that “intense competition and overcapacity” meant that boosting profit margins will demand focus and discipline.
The ITEM Club expects general insurers to continue to benefit from a buoyant housing market, though less so than in 2014.
But it added that growth in home and motor premiums will be squeezed by a combination of regulatory change, competition and overcapacity.
Robertson said: “The roll-out of telematics and action to tackle fraudulent claims will offset some, but not all, of these pressures.”
The ITEM Club also said it expected M&A activity in the specialty insurance market to pick up as the industry seeks scale through consolidation.
The forecaster said a key question was how much of the M&A activity was cyclical and how much was structural.
It noted that the matching adjustments under Solvency II are making reinsurance less attractive, driving insurers to retain more risks and a growing use of alternative risk transfer.