£600m release from insurers' reserves will help to offset £200m underwriting loss

Motor insurers have released £600m in reserves during 2005, improving the profitability of the UK motor market.

According to accountant Deloitte, the market experienced an underwriting loss of £200m across commercial and personal motor last year. This compares with a £70m loss in 2004.

The loss was attributed to the personal motor market, which lost £320m but was offset by an underwriting profit of £120m in commercial motor.

Deloitte added that the average improvement in the operating ratio from reserve releases was 6.8%, although it predicted this would drop to 4% in 2006 and 2007.

James Rakow, insurance actuary at Deloitte, said: "This year we have seen the largest ever reserve release and without it, underwriting losses would have been substantially higher. The big question on everyone's mind is whether the market can sustain releases at these levels. We think a more sustainable level is reserve releases of £350m."

In 2005, once investment returns were taken into account, Deloitte estimated the industry made £500m profit.

At its annual motor insurance seminar, Erik Johnson, assistant manager with Deloitte's insurance strategy team, suggested that new motor insurer start-ups might consider Gibraltar as an "attractive jurisdiction".

An executive survey by Deloitte indicated that the Gibraltar market is best suited to niche books of motor business, overall which is in line with the accountant's assessment of the market.

Johnson said: "We believe there is scope for smaller niche and specialist insurers to write profitable books of business into the UK. We expect that the Gibraltar market will exceed the size of the Lloyd's market in terms of premium by the end of 2006.

"It will continue to be an attractive domicile for motor insurers writing into the UK due to the speed of establishing a Gibraltar-based insurer, flexible capital requirements, and ease of outsourcing administration functions."