Market-wide COR at 99.4% as industry makes first profit in at least nine years

The UK personal motor insurance industry returned to underwriting profitability in 2013, reporting a collective combined operating ratio (COR) of 99.4%, according to figures from accounting firm Deloitte.

The just-profitable COR was 5.6 points better than 2012’s 105%, despite the heavy competition and price cutting that took place in personal motor throughout the year.

But Deloitte partner James Rakow said the profitability was heavily dependent on prior-year reserve releases and that it would be a challenge to sustain the performance in coming years.

Reserve releases

The return to profitability in personal motor has ended a sustained period of underwriting losses. It is the first time the COR has been below 100% since at least 2004.

A big factor in the improvement were reserve releases, which shaved 9.9 percentage points from the personal motor COR in 2013. Without the releases, the COR would have been a much less flattering 109.3%.

Rakow also attributed the improvement in part to rate increases in 2010 and 2011, which continued to feed into the industry’s 2013 net earned premiums. The first emergence of benefits from the 2013 legal reforms, aimed at curbing bodily injury claims, also benefited the result, he said.

But Rakow pointed out that the high current year COR of 109.3%, which excludes prior-year reserve releases, could bode ill for the future profitability of UK personal motor.

He told Insurance Times: “The impact of price cuts is turning the market towards higher ratios.

“On one hand, the personal lines motor insurance industry just turned in an underwriting profit in 2013. But on the other, the direction is now pointing towards a challenge for the industry to maintain profitability.”

He expects the market to respond with rate increases. “There will be a tipping point in the near future where, if the industry doesn’t start to increase premiums, the overall results that we will see in 2014 and beyond could decline.

“We would see the likelihood of premiums going up being quite strong at some point in the latter half of the year.”

Commercial dip

Commercial motor fared worse than personal lines. The market-wide commercial motor COR for 2013 was 107.9% – 4.4 points worse than 2012’s 103.5%.

Rakow said commercial motor enjoyed less benefit from reserve releases than personal motor.

The overall UK motor COR was 101.7%, three points better than 2012’s 104.7%.