The UK motor insurance industry has turned an underwriting profit for the first time in twenty years, according to Ernst and Young.
Analysis of the year-end results of the majority of listed insurers indicates that the net combined ratio is going to be 98.5%, a 3.9pp improvement year on year since 2012 and the strongest underwriting performance since 1994.
The full picture shows reserve releases are increasing, and since 2010 have risen by 7.2 percentage points.
This activity mirrors the pattern that was seen in the mid-noughties, where they peaked at 12.8% in 2007 before falling to below 0% in 2010.
E&Y head of retail, property and casualty actuarial, Catherine Barton said: “Soaring claims rates driven by a rampant claims culture have meant that insurance underwriting has proven to be perpetually unprofitable over the last decade.
“Returns were heavily supplemented by ancillary profits or add-ons from other sections of the business. A net combined ratio of less than 100 has been hoped for since the referral fee ban, which aims to curb excessive and often illegitimate claims farming. However, given the size of reserve releases this year, it may not be the turning point and cause for celebration the industry is eager for.
“The question remains – are strong reserve releases simply masking true performance in the same way they did in the mid-noughties, and is profitability set to mirror the 2009 fall when reserve releases inevitably deplete?”
Without reserve releases, the COR for the industry for 2013 is 105.7%.