Motor insurers should turn a profit on motor this year after pushing through swingeing premium hikes, actuaries Bacon & Woodrow claim.
Rate increases of up to 30% implemented last year, investment returns and strong capital reserves will see the market firmly close the door on 1998 – now deemed the industry's worst year ever.
The firm's latest profitability model forecasts an operating ratio of 115% in 1999, dropping to 110% this year – enough to put the business of motor insurance back into the black – once investment income is included.
Bacon & Woodrow also says that more consolidation is probably on the way. Five players control two-thirds of the market but none has a more than 15% share, which contrasts sharply with other countries. Meanwhile, second-tier insurers in what the firm terms the "marzipan layer" have been moving their operating ratios closer to those of their larger competitors.
"Last year saw a drop-off in the level of mergers and acquisitions activity amongst UK motor insurers," said the firm's Nigel Munns. "Issues such as economics of scale and the need to reduce costs will be drivers for continuous change in the motor market. The climate is ripe for new entrants in the form of brand owners with distribution capability, although their role may not be as a risk carrier."