Are motor insurers in Gibraltar feeling the pressure?
The profitability of Gibraltan private motor insurance market is predicted to be moving further into the red.
Last year, the net operating ratio of the market increased from 98.4% to 101.3%. It is widely anticipated that this number will deteriorate further this year, despite the positive affect of its two largest inhabitants, Admiral and Saga.
It is the smaller players, namely Zenith/Link, Equity-owned Advantage and Markerstudy (not to mention Arriva, with its net operating ratio nudging 180% last year) that have been experiencing more turbulent times, according to Deloitte.
Accounting for around third of the Gibraltar market between them, this is no trifling matter.
What makes Gibraltar a little more interesting is the fact that the vast majority of the business is of the personal lines variety, which is generally less profitable – but no less competitive – than commercial lines.
Gibraltar also derives a much larger chunk of its capital from reinsurance: one quarter in total, as opposed to one tenth in the UK. With purse strings in their current tightened state, reserve releases playing an ever greater share of net operating ratios (10% in 2006 in the UK, for example) and its lighter regulatory regime, it is perhaps not so surprising that uncertainty is swirling around the rock.
Yet concerns over sustainability apply as much to the UK-based market as its smaller cousin in the Mediterranean.
According to analysts, in fact, Gibraltar is increasingly mimicking its £12.2bn counterpart in Britain.
The Gibraltar market, worth £785m last year, remains relatively small, accounting for only 6% of total market share.
Lloyd’s, meanwhile, accounts for £923m in premium. Much of this appears to be up for grabs. At current rates, hastened by the withdrawal of Highway two months ago, Lloyd's and Gibraltar could switch places as soon as next year.
Whatever the case may be, analysts point to the fact that the growth of the larger players – namely Saga and Admiral – has played a key role in stabilising the Gibraltan market. During the first half of this year, Admiral grew its motor customer base by 16% to 1.4 million, while Saga looks primed to benefit from its £6.15bn merger with the AA.
Indeed, the latest research shows that the Gibraltan insurers in terms of net operating ratios are peforming as well, if not better than, their UK counterparts.
The case seems to be that Gibraltar remains something of a rock.