Credit rating agency AM Best has revised its outlook on the UK’s non-life insurance sector from negative to stable due to supporting factors such as favourable market conditions and price corrections.

In its market segment outlook report, AM Best noted: “Factors that support the revised outlook include: inflation is expected to decrease closer to the Bank of England’s 2.0% target in mid-2024, easing the upward pressure on claims costs which spiralled during 2023; significant price corrections in personal lines should pave the way for close to breakeven underwriting results, a significant improvement against recent results; market conditions in the commercial and specialty sector are expected to remain favourable; higher interest rates will allow the market to lock-in robust investment returns for the short-to-medium term.”

The rating agency highlighted that insurers would be better positioned to adjust pricing assumptions – and improve underwriting results – with inflation closer to its target. Enhanced underwriting results in personal lines are also expected to be driven by considerable rate increases and reduced claims inflation, while commercial and specialty lines continue to benefit from a hard market. Additionally, according to AM Best, operating results are poised to be bolstered by increased investment yields as the segment benefits from higher interest rates.

“In comparison to the retail market, the UK commercial and specialty segments suffer to a lesser extent from price competition,” AM Best said. “The quality of service and existing relationships play a greater role in customers’ decision-making process. In this context, underwriting discipline is expected to be maintained in these lines, with good terms and conditions, together with robust rate adequacy, likely to continue to support solid underwriting margins.

Meanwhile, moderating factors include the increased cost of reinsurance and uncertainty around the outcome of the upcoming Ogden rate review.

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