UK Commercial General Insurance 2009

Introduction

This unique report provides an unrivalled analysis of the UK general insurance market with a specific focus on the commercial lines sector. It segments the market by line of business and assesses underwriting profits and investment income. The research also includes an in-depth analysis of the distribution and competitive landscape and forecasts the commercial lines market size to 2013.

Scope

*Data on the size, structure and profitability of the total non-life market and the commercial lines sector.

*Analysis of the total premiums and market share for the largest commercial lines insurance groups.

*A discussion of the main factors affecting the general insurance market in the future along with forecasts of market size to 2013.

Highlights

Perhaps the most striking feature of the market, based on our analysis of the 2008 FSA Returns, is the sharp deterioration in the combined ratio in commercial lines. Pure year combined ratios increased across the board in recent years including commercial property, motor, liability and commercial pecuniary loss lines.

One of the main developments that Datamonitor expects to see in the 2009 FSA Returns, when they become available next year, is a significant re-shaping of the commercial books of some of the leading commercial insurance groups. The H1 2009 results point to several large insurance groups reducing their capacity for commercial lines business.

Reasons to Purchase

*Understand the segmentation of the UK general insurance market and the differing profitability by class of business.

*Benchmark your premium income against that of your competitors and understand the drivers of growth in their businesses.

*Gain insight into the future development of the market in terms of competitors, major issues and market size.


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Commercial lines is running a high pure year COR 2
The industry trading result held up well 2
Commercial is running a high pure year COR 2
2009 will see a dip in the industry trading result and some changes to groups' commercial books 2
The rate of market growth will increase over the next five years as the market hardens 2
Table of Contents 3
Table of figures 4
Table of tables 5
Market context 6
Introduction 6
Conditions are deteriorating for insurers 6
The market contracted in 2008 as insurers continued to compete hard 6
Insurers pulled capacity from suretyship insurance 8
Motor and property insurance continue to dominate the UK non-life insurance market 10
Lloyd's of London underwrites around £2 billion of UK insurance 12
Motor, liability, property and pecuniary loss have driven the COR up in recent years 13
Pecuniary loss is a strong source of underwriting profit 16
Insurers are being hit by falling investment income 18
A drop in investment income put additional pressure on insurers' margins in 2008 18
Insurers saw an estimated trading result of 9% of NWP in 2008 20
Reserve releases are propping up reported profits 22
Insurers propped up their reported underwriting results with around £1 billion in reserve releases 22
Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability insurance 23
The soft market has hit home in commercial lines 24
Growth in commercial lines remains subdued by strong competition 24
The commercial market is growing slowly 25
Commercial lines is running a high COR, net of reserve releases 27
ABI data show a commercial lines profit, after allowing for reserve releases 29
Distribution 32
Introduction 32
National brokers increased their share of the commercial insurance market in 2008 32
National brokers saw a significant increase in market share as other brokers saw their market share contract 32
The direct channel experienced a small decline in market share in 2008 33
Partnerships with affinities have only generated a small proportion of commercial insurance GWP 33
Commercial insurance GWP distributed through banks and building societies remains negligible 33
Less traditional forms of arrangement are more common among smaller SMEs 35
Brokers dominate among all sizes of SMEs, though they have greater market share among larger SMEs 35
Face-to-face arrangement is popular in the market but is more prevalent among larger SMEs 36
Price is the key factor behind SME insurance purchasing decisions 37
SMEs are sensitive to price, regardless of their size 37
SMEs that purchase online appear to be the most price sensitive 39
High levels of retention go along with high levels of satisfaction 39
SMEs are generally happy with their insurance provider 39
SMEs tend to prefer longstanding relationships with their providers, making an initial pitch critical 40
A large proportion of SMEs are unlikely to switch to a new provider 41
More SMEs considered a change of provider in 2009 than in 2008 41
A variety of companies, from different industries, believe they will change their provider over the next year 42
SMEs that use the internet to arrange their insurance are the most likely to search out a new provider 43
Of those SMEs willing to buy insurance online or via the telephone, liability products were the most popular 44
Competitive Dynamics 46
Introduction 46
Aviva remains the market leader 46
Aviva remained the clear leader in the UK commercial insurance market in 2008 with a 13.1% market share 46
RSA, Zurich, AXA and Allianz occupy positions two to five 47
RSA has adopted a strategy of selective capacity withdrawal and premium rate increases 47
Zurich remained the third largest UK commercial insurer in 2008 with a market share of 9.8% 47
AXA remained one of the larger top 10 commercial players in 2008, with a market share of 6.9% 47
Allianz maintained its market share of 7.1% in 2008 48
AIG was the 6th largest commercial insurance group 48
NFU Mutual and QBE gained share 49
NFU bucked the trend, reporting a 3.3% increase in its commercial lines business GWP in 2008 49
QBE grew its commercial lines business by 8.5% to £416.1m 49
RBS's 2.8% market share was largely due to its sizable presence in the commercial property insurance market 49
ACE's 2.4% market share made it the tenth largest commercial insurer in the UK market 50
Future Decoded 53
Introduction 53
The industry trading result will be challenging in 2009 53
The 2009 results will show some significant re-shaping of players' books 53
Profits are expected to dip in 2009 53
Investment returns will fall 53
Reserve releases are expected to continue in 2009 53
Profits are likely to be impacted by a sharp rise in the pecuniary loss COR in 2009 and 2010 54
Commercial lines is forecast to grow to £18 billion by 2013 55
Adverse economic conditions will trim growth across the market early in the forecast 55
The liability insurance market will see growth close to the market compound average 55
Premium rate inflation will drive growth in the commercial motor insurance market 56
Commercial property insurance GWP will experience the fastest growth of all commercial insurance lines 56
Economic recovery and premium rate growth will increase commercial pecuniary loss GWP 56
An improvement in the economy and premium rates will result in higher liability insurance premium income 58
Premium rates will drive liability GWP growth, though higher turnover and headcount will generate growth as well 58
The liability market will reach a value of £7.6 billion in 2013 under expected conditions 59
Growth in commercial motor insurance GWP will mainly come from higher premium rates 61
Premium rate increases will be the primary factor driving growth in the commercial motor insurance market 61
The UK commercial motor insurance market is forecast to reach a value of £3.8 billion in 2013 62
Commercial property premium income growth will be stronger in the early years of the forecast 64
The market will grow slowly in 2009 and harden significantly thereafter 64
The commercial property market is predicted to be worth £5.9 billion by 2013 65
Commercial pecuniary loss GWP is expected to grow, but not regain recent highs 67
Premium income is expected to remain below £1 billion, despite continual growth 67
APPENDIX 69
Definitions 69
ABI members 69
Accident year combined ratio 69
Bancassurers 69
Brokers 69
Brandassurers 69
Channel 69
Direct insurer/writer 69
Earned premiums 69
Gross premium 69
Net premium 69
Platform 69
Reported year combined ratio 70
Reserve development 70
Suretyship insurance 70
Written premiums 70
Additional data 71
Further reading 75
Ask the analyst 75
Datamonitor consulting 75
Disclaimer 75
List of Tables
Table 1: Annual growth in general insurance market, 2000-08 (%) 7
Table 2: GWP by line of business, 2000-08 (£m) 11
Table 3: UK insurance market split by ABI members and Lloyd's of London, 2008 (£m) 13
Table 4: Total market combined ratio, 2004-08 (%) 15
Table 5: Accident year CORs by line of business, 2004-08 (%) 16
Table 6: Underwriting result by line of business, 1998-2008 (£m) 18
Table 7: Underwriting result, investment income and trading result as a percentage of NWP (worldwide business of UK insurers), 2000-08 20
Table 8: Underwriting result, investment income and trading result as a percentage of NWP (UK business), 2000-08 22
Table 9: Commercial insurance GWP by line of business, 2005-08 (£m) 27
Table 10: Accident year COR, commercial lines, 2005-08 (%) 29
Table 11: Underwriting result, commercial lines, 1998-2008 (£m) 31
Table 12: Market share of the distribution channels in the commercial general market, 1999-2008 (%) 35
Table 13: Q: "What were the most important reasons for choosing your commercial insurance provider?" 38
Table 14: Q: "How long have you been with your current insurance provider?" 41
Table 15: Q: "Do you think you will change your commercial insurance provider in the next 12 months?" 42
Table 16: Top 10 UK commercial general insurance groups by market share and GWP, 2005-08 52
Table 17: Forecast commercial general insurance GWP, 1997-2013f 58
Table 18: Key variables affecting commercial liability insurance GWP, 2009f-13f 59
Table 19: Forecast of UK commercial liability insurance GWP, 2005-13f (£m) 61
Table 20: Key variables affecting commercial motor insurance GWP, 2009f-13f 62
Table 21: Forecast of UK commercial motor insurance GWP, 2009-13f (£m) 64
Table 22: Key variables affecting GWP, 2009f-13f 65
Table 23: Forecast of UK commercial property insurance premium income, 2005-13f (£m) 66
Table 24: Forecast of UK commercial pecuniary loss insurance premium income, 2005-13f (£m) 68
Table 25: Total UK pecuniary loss underwriting account, 1998-2008 71
Table 26: Total UK property underwriting account, 1998-2008 71
Table 27: Total UK household underwriting account, 1998-2008 72
Table 28: Total UK commercial property underwriting account, 1998-2008 72
Table 29: Total UK motor underwriting account, 1998-2008 73
Table 30: Total UK personal motor underwriting account, 1998-2008 73
Table 31: UK commercial motor underwriting account, 1998-2008 74
Table 32: UK liability underwriting account, 1998-2008 74
Table 33: UK accident & health underwriting account, 1998-2008 75
List of Figures
Figure 1: The industry has experienced slow or negative growth in recent years due to strong competition 7
Figure 2: Increases in the liability and property sectors were offset by falls in motor, A&H and pecuniary loss 9
Figure 3: Motor and property continue to be the two largest lines of business 10
Figure 4: Lloyd's of London underwrites around 5% of the UK insurance market 12
Figure 5: The combined ratio for the total market bottomed out in the years 2004-06 but it has increased to 108% in 2008 14
Figure 6: Motor, liability, property and pecuniary loss have seen increasing CORs 15
Figure 7: Pecuniary loss and A&H are a steady source of profits 17
Figure 8: Investment income as a percentage of premiums fell to an all time low in 2008 due to the financial crisis 19
Figure 9: The trading result for UK business fell in 2008 however it was broadly in line with the across-the-cycle trading result 21
Figure 10: Insurers have bolstered reported profits with massive reserve releases in the years 2005-08 23
Figure 11: Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability 24
Figure 12: Slow premium growth has led to deterioration in the commercial lines COR 25
Figure 13: General liability is the largest line of commercial insurance 26
Figure 14: Commercial lines combined ratios have increased across the board 28
Figure 15: Commercial lines underwriting peaked in 2004-6 and has now started deteriorating 30
Figure 16: National brokers witnessed a significant increase of their share in the UK commercial insurance market in 2008 34
Figure 17: Brokers have the highest penetration among medium-sized firms 36
Figure 18: Micro SMEs are most comfortable with arranging their cover over the telephone 37
Figure 19: Price was almost matched in importance by service as a criteria for selecting a provider 38
Figure 20: Internet clients are the most price-sensitive 39
Figure 21: Satisfaction levels in the market remain high 40
Figure 22: Very few SMEs have changed their provider in the last two years 41
Figure 23: Companies in the education sector are the most likely to seek out a new quote in the next 12 months 43
Figure 24: Clients which arrange their insurance through the internet are the most likely to search for another provider 44
Figure 25: SMEs show the greatest willingness to purchase public and employers' liability insurance online 45
Figure 26: QBE and NFU Mutual increased market share in 2008 51
Figure 27: Insurers are likely to see a sharp rise in the pecuniary loss COR judging from the effects of the last recession in 1990 55
Figure 28: Commercial insurance GWP is forecast to grow throughout the forecast period as the market hardens 57
Figure 29: Liability GWP is expected to fall in 2009 and return to growth thereafter 60
Figure 30: Premium rates are expected to drive commercial motor insurance growth in 2009 and 2010 63
Figure 31: Commercial property is set to harden in order to bring the COR down 66
Figure 32: The commercial pecuniary loss market is forecast to grow again, though at a lower rate 67

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List of Tables
Table 1: Annual growth in general insurance market, 2000-08 (%) 7
Table 2: GWP by line of business, 2000-08 (£m) 11
Table 3: UK insurance market split by ABI members and Lloyd's of London, 2008 (£m) 13
Table 4: Total market combined ratio, 2004-08 (%) 15
Table 5: Accident year CORs by line of business, 2004-08 (%) 16
Table 6: Underwriting result by line of business, 1998-2008 (£m) 18
Table 7: Underwriting result, investment income and trading result as a percentage of NWP (worldwide business of UK insurers), 2000-08 20
Table 8: Underwriting result, investment income and trading result as a percentage of NWP (UK business), 2000-08 22
Table 9: Commercial insurance GWP by line of business, 2005-08 (£m) 27
Table 10: Accident year COR, commercial lines, 2005-08 (%) 29
Table 11: Underwriting result, commercial lines, 1998-2008 (£m) 31
Table 12: Market share of the distribution channels in the commercial general market, 1999-2008 (%) 35
Table 13: Q: "What were the most important reasons for choosing your commercial insurance provider?" 38
Table 14: Q: "How long have you been with your current insurance provider?" 41
Table 15: Q: "Do you think you will change your commercial insurance provider in the next 12 months?" 42
Table 16: Top 10 UK commercial general insurance groups by market share and GWP, 2005-08 52
Table 17: Forecast commercial general insurance GWP, 1997-2013f 58
Table 18: Key variables affecting commercial liability insurance GWP, 2009f-13f 59
Table 19: Forecast of UK commercial liability insurance GWP, 2005-13f (£m) 61
Table 20: Key variables affecting commercial motor insurance GWP, 2009f-13f 62
Table 21: Forecast of UK commercial motor insurance GWP, 2009-13f (£m) 64
Table 22: Key variables affecting GWP, 2009f-13f 65
Table 23: Forecast of UK commercial property insurance premium income, 2005-13f (£m) 66
Table 24: Forecast of UK commercial pecuniary loss insurance premium income, 2005-13f (£m) 68
Table 25: Total UK pecuniary loss underwriting account, 1998-2008 71
Table 26: Total UK property underwriting account, 1998-2008 71
Table 27: Total UK household underwriting account, 1998-2008 72
Table 28: Total UK commercial property underwriting account, 1998-2008 72
Table 29: Total UK motor underwriting account, 1998-2008 73
Table 30: Total UK personal motor underwriting account, 1998-2008 73
Table 31: UK commercial motor underwriting account, 1998-2008 74
Table 32: UK liability underwriting account, 1998-2008 74
Table 33: UK accident & health underwriting account, 1998-2008 75

List of Figures
Figure 1: The industry has experienced slow or negative growth in recent years due to strong competition 7
Figure 2: Increases in the liability and property sectors were offset by falls in motor, A&H and pecuniary loss 9
Figure 3: Motor and property continue to be the two largest lines of business 10
Figure 4: Lloyd's of London underwrites around 5% of the UK insurance market 12
Figure 5: The combined ratio for the total market bottomed out in the years 2004-06 but it has increased to 108% in 2008 14
Figure 6: Motor, liability, property and pecuniary loss have seen increasing CORs 15
Figure 7: Pecuniary loss and A&H are a steady source of profits 17
Figure 8: Investment income as a percentage of premiums fell to an all time low in 2008 due to the financial crisis 19
Figure 9: The trading result for UK business fell in 2008 however it was broadly in line with the across-the-cycle trading result 21
Figure 10: Insurers have bolstered reported profits with massive reserve releases in the years 2005-08 23
Figure 11: Insurers made significant reserve releases in motor and property insurance while strengthening reserves for liability 24
Figure 12: Slow premium growth has led to deterioration in the commercial lines COR 25
Figure 13: General liability is the largest line of commercial insurance 26
Figure 14: Commercial lines combined ratios have increased across the board 28
Figure 15: Commercial lines underwriting peaked in 2004-6 and has now started deteriorating 30
Figure 16: National brokers witnessed a significant increase of their share in the UK commercial insurance market in 2008 34
Figure 17: Brokers have the highest penetration among medium-sized firms 36
Figure 18: Micro SMEs are most comfortable with arranging their cover over the telephone 37
Figure 19: Price was almost matched in importance by service as a criteria for selecting a provider 38
Figure 20: Internet clients are the most price-sensitive 39
Figure 21: Satisfaction levels in the market remain high 40
Figure 22: Very few SMEs have changed their provider in the last two years 41
Figure 23: Companies in the education sector are the most likely to seek out a new quote in the next 12 months 43
Figure 24: Clients which arrange their insurance through the internet are the most likely to search for another provider 44
Figure 25: SMEs show the greatest willingness to purchase public and employers' liability insurance online 45
Figure 26: QBE and NFU Mutual increased market share in 2008 51
Figure 27: Insurers are likely to see a sharp rise in the pecuniary loss COR judging from the effects of the last recession in 1990 55
Figure 28: Commercial insurance GWP is forecast to grow throughout the forecast period as the market hardens 57
Figure 29: Liability GWP is expected to fall in 2009 and return to growth thereafter 60
Figure 30: Premium rates are expected to drive commercial motor insurance growth in 2009 and 2010 63
Figure 31: Commercial property is set to harden in order to bring the COR down 66
Figure 32: The commercial pecuniary loss market is forecast to grow again, though at a lower rate 67
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