Decreasing reserve releases mean underwriting profits will be hard to maintain

The motor insurance market is set to return to loss-making territory for 2014, according to EY.

The professional services firm is predicting a combined operating ratio (COR) of 109.3%, which includes reserve releases of 5% - 2.2 percentage points less than in 2013.

EY said that in order to achieve underwriting profitability, reserve releases would need to hit unprecedented levels of 14%.

Head of retail property and casualty actuarial Catherine Barton said: “Repeating the COR of 98.5% in 2013 looks nigh on impossible for 2014. Insurers are experiencing continued premium reductions while claims inflation - although less rampant than in recent years - is still tracking close to inflation.”

And recent reforms that have been aimed at reducing costs have failed to have enough of an impact on claims costs, according to Barton.

“In spite of considerable reform in the motor market, claims costs continue to rise,” she said. “Most focus to date has been targeted at controlling small claims costs. As reform hasn’t been designed to deal with the cost of large claims, unsurprisingly they are still increasing.”

“Ultimately, motor insurers still need to make money. Sooner or later underlying price rises for consumers will be inevitable for the market to be sustainable,” she added.

EY also predicts a further deterioration of the COR in 2015, predicting a ratio of 114.5%.

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