Industry-wide COR improves by four points to 98.5% in 2013, study finds

The UK motor insurance industry reported a combined operating ratio (COR) of 98.5% in 2013, according to a study of listed insurers’ year-end results by  Ernst & Young (EY).

This is the first time the industry’s overall motor COR, including personal and commercial lines, has been below 100% since 1994, according to EY’s figures.

The 2013 COR is an improvement of four percentage points on 2012’s loss-making ratio of 102.5%.

The EY figures are more flattering than a similar study by Deloitte, which found that the personal motor market had returned to underwriting profitability with a COR of 99.4%, but that the overall motor market was still in loss-making territory with a COR of 101.7%.

But EY pointed out that the 2013 improvement shown in its figures was heavily reliant on reserve releases. Without the releases, the industry COR would have been 105.7%.

The company said reserve releases as a percentage of net earned premiums had increased by 7.2 percentage points since 2010.

EY head of retail property and casualty actuarial for Europe, the Middle East, India and Africa Catherine Barton said: “A net combined ratio of less than 100 has been hoped for since the referral fee ban, which aims to curb excessive and often illegitimate claims farming.

“However, given the size of reserve releases this year, it may not be the turning point and cause for celebration the industry is eager for.

“The question remains – are strong reserve releases simply masking true performance in the same way they did in the mid-noughties, and is profitability set to mirror the 2009 fall when reserve releases inevitably deplete?”

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