The firm highlighted that one path to gaining capital is turning to higher investment returns

The UK’s company market outlook for 2023 is deteriorating – primarily driven by inflation and a pricing rate lag across motor and home, said Federico Faccio, senior director of EMEA insurance at credit rating provider Fitch Ratings.

Speaking as part of Fitch’s Insurance insights 2023 and beyond event, which took place in London yesterday afternoon (1 February 2023), Faccio explained that inflation had fuelled several challenges in personal lines – including increased costs of car parts, property and employment.

The FCA’s general insurance pricing practices and adverse weather events have also negatively impacted on firms’ financial books.

Considering this “bleak” market picture, Faccio questioned whether premiums could “keep pace”.

Looking at motor in particular, Faccio highlighted a current “big gap” between the pricing conditions and claims inflation in motor – “there is definitely a catch-up to do on pricing,” he added.

The importance of this catch-up will be heightened this year, as increases to premium costs accelerate with influence from by “strong” competition in the UK market, he explained. 

Faccio further noted that consumers tend to switch policies less in home compared to motor, which has contributed to a “sharp fall” in home insurance premiums in H1 2022.

Reinvesting yields

In terms of underwriting profitability outlook, the firm’s director said there was “not good news”, due to a deterioration in combined ratios for both motor and home insurers.

The cost of reinsurance has also increased “substantially” – meaning companies are “squeezed” between difficulties in pricing, consumers having less money to spend and an increase in claims frequency following the Covid-19 pandemic.

One potential solution is for firms to look at higher investment returns, which Faccio believed could incentivise a “strong underwriting discipline”.

He added: “We think, however, like in any difficult situation, there will be winners and losers – companies that have discipline, strong capital and good reserves will almost certainly fair better than companies that do not have these features”.