Earlier this week, the FT reported the latest numbers from EY summarising the UK motor insurance market’s 2023 profitability and the outlook for 2024 and 2025. The combined ratio of 113% for 2023 aligns closely with forecasts from LCP (113%) and our own (112%), indicating that the industry performed worse in 2023 than in 2022.
However, two important stories haven’t been told:
1. Bifurcation in results.
The “whale” chart below starkly shows the divide between the stars making money and those incurring the hefty losses, with firms sorted from left to right by their contribution to the industry’s combined ratio.
In 2023:
– Almost half of the UK motor insurance firms are making money (“Money-makers”),
– The “Mixed-middle” includes large firms with borderline results and small firms who might have had terrible results but aren’t large enough to move the market,
– And finally, the larger firms at the end (around 20% of firms) reporting large underwriting losses, with several undergoing or likely to require remediation, or are only in here as a result of how they present their results.
This chart undermines the “we’re making no money” arguments of the wider industry arising from looking at averages only. Removing the bottom 8 firms would result in an industry break-even. Many firms are doing fairly nicely – even if underwriting breaks-even, there are still investment returns to shore up the business.
2. Design limitations of solvency returns: some firms that reported larger losses through these returns have actually achieved a bottom-line profit.
The interesting question for 2024’s results will be how evenly the improvements are distributed. But that’s a topic for next year!
Earlier this week, the FT reported the latest numbers from EY summarising the UK motor insurance market’s 2023 profitability and the outlook for 2024 and 2025. The combined ratio of 113% for 2023 aligns closely with forecasts from LCP (113%) and our own (112%), indicating that the industry performed worse in 2023 than in 2022.
However, two important stories haven’t been told:
1. Bifurcation in results.
The “whale” chart below starkly shows the divide between the stars making money and those incurring the hefty losses, with firms sorted from left to right by their contribution to the industry’s combined ratio.
In 2023:
– Almost half of the UK motor insurance firms are making money (“Money-makers”),
– The “Mixed-middle” includes large firms with borderline results and small firms who might have had terrible results but aren’t large enough to move the market,
– And finally, the larger firms at the end (around 20% of firms) reporting large underwriting losses, with several undergoing or likely to require remediation, or are only in here as a result of how they present their results.
This chart undermines the “we’re making no money” arguments of the wider industry arising from looking at averages only. Removing the bottom 8 firms would result in an industry break-even. Many firms are doing fairly nicely – even if underwriting breaks-even, there are still investment returns to shore up the business.
2. Design limitations of solvency returns: some firms that reported larger losses through these returns have actually achieved a bottom-line profit.
The interesting question for 2024’s results will be how evenly the improvements are distributed. But that’s a topic for next year!