UK Commercial Property Insurance 2010

Introduction

This report provides a detailed analysis of the UK commercial property insurance market. It looks at the size of the market, performance ratios, claims costs, key issues and distribution trends. It also assesses the competitive landscape providing market share information and forecasts the total market GWP up to and including 2014.

Features and benefits

* An examination of overall market size, growth and profitability over the last several years
* Analysis of the key drivers of claims inflation using ABI figures for 2009 and H1 2010
* Market share and combined ratio data for the largest commercial property insurers
* Forecasts of the market’s GWP growth until 2014, based on primary interview, secondary research and in-house expertise

Highlights

Businesses have increasingly incorporated more technology and expensive equipment as standard, resulting in the rise of average value of claims over the past few years, as the potential "loss per square foot" for a property is said to increase.
Premium rates are not expected to increase adequately in the near term, and due to the volume of reserve releases over the past few years, it is suspected that the level of reserves held by commercial property insurers is depleting.
In 2009, RSA is estimated to have witnessed growth in its UK commercial property insurance gross written premiums (GWP) of 3.1%, resulting in a 0.6 percentage point increase in market share to 14.4%. This is in comparison to a drop in market share as experienced by most of the other top commercial property insurers.

Your key questions answered

* How has the commercial property insurance market been faring recently and how is it forecast to perform in the next four years?
* How are the various commercial property insurers performing in terms of GWP and combined operating ratios?
* What is the size and profitability of the total market, and how is this expected to change in the future?
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TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The market contracted in 2009 due to high competition 2
Commercial property insurance witnessed an improving combined operating ratio in 2009 2
The first half of 2010 displayed an increased claims cost bill 2
RSA has overtaken Aviva as the leading insurer for commercial property 3
AXA and Allianz retained their top five market positions 4
Brit Insurance and QBE displayed sizable increases in GWP in 2009 4
The market is forecast to remain soft at least into 2011 4
Market Context 9
Introduction 9
The market contracted in 2009 due to high competition 9
Commercial property insurance witnessed an improving combined operating ratio in 2009 12
The first half of 2010 displayed an increased claims cost bill 17
Construction and policy changes over the next few years will apply upward pressure on claims costs 28
Distribution 31
Introduction 31
National brokers arrange half the UK commercial insurance policies 31
Competitive Dynamics 37
Introduction 37
RSA has overtaken Aviva as the leading insurer for commercial property 37
AXA and Allianz retained their top five market positions 37
Brit Insurance and QBE displayed sizable increases in GWP in 2009 38
Future Decoded 42
Introduction 42
The market is forecast to remain soft at least into 2011 42



Appendix 47
Definitions 47
Methodology 48
Further reading 48
Ask the analyst 48
Datamonitor consulting 48
Disclaimer 49

TABLE OF FIGURES
Figure 1: The commercial property insurance market saw a diminished underwriting profit in 2009 3
Figure 2: The commercial property insurance market has been contracting since 2005 10
Figure 3: Real growth has been negative in the competitive market since 2005 11
Figure 4: The commercial property insurance market saw a diminished underwriting profit in 2009 13
Figure 5: The total property COR has been improving at a faster rate than for commercial property 14
Figure 6: The level of reserve releases increased significantly in 2009 16
Figure 7: Fire-incurred claims cost insurers less in H1 2010 than H1 2009 18
Figure 8: Escape of water claims have been increasing since at least 2004 20
Figure 9: In 2009, escape of water claims became more prominent than those for business interruption 21
Figure 10: The total weather claims cost decreased slightly in 2009 23
Figure 11: The total cost of business interruption claims fell significantly in 2009 24
Figure 12: Total cost of commercial property insurance theft claims (£m), 2004–09 26
Figure 13: The average value of theft claims rose in 2009 while the number of incidences fell 27
Figure 14: Over four fifths of commercial property insurance policies are arranged via brokers 32
Figure 15: Around three quarters of small and medium enterprises purchased their commercial insurance through brokers 34
Figure 16: Two-fifths of SMEs would consider online insurance arrangement 35
Figure 17: Top 10 competitors' market share/change 38
Figure 18: Chartis, Allchurches, Allianz, and the RBS group made an underwriting profit in 2009 40
Figure 19: Total commercial property insurance GWP (£m), 2002–14f 44
Figure 20: The combined operating ratio is forecast is increase in 2010 before declining toward the end of the forecast period 46


TABLE OF TABLES
Table 1: Total commercial property insurance GWP, 2002–09 10
Table 2: Commercial property premium real growth rates and average inflation (%), 2003–09 12
Table 3: Commercial property insurance costs and underwriting results, 1999 - 2009 13
Table 4: Accident year CORs for commercial and total property insurance (%), 2005-09 15
Table 5: Accident and reported year COR, underwriting results, and reserve developments in the commercial property insurance market (%), 2005–09 17
Table 6: Gross incurred commercial property insurance claims, by peril (£m), H1 2009–H1 2010 18
Table 7: Gross incurred commercial property insurance claims, by peril (£m), 2004–09 20
Table 8: Proportion of gross incurred commercial property insurance claims, by peril (%), 2004–09 22
Table 9: Commercial property insurance weather claims (£m), 2004–09 23
Table 10: Cost of business interruption claims, by cause (£m), 2004–09 25
Table 11: Total cost of commercial property insurance theft claims (£m), 2004–09 26
Table 12: Number and average value of commercial property insurance theft claims, 2004–09 28
Table 13: Share of distribution channels in the commercial general insurance market (%), 2004–09 33
Table 14: Insurers offering UK commercial property insurance 36
Table 15: GWP and market share of the top 10 UK commercial property insurance groups, 2008–09 39
Table 16: Reported year combined ratios and underwriting profit/loss for the top 10 commercial property insurance groups, 2009 41
Table 17: Key variables affecting GWP, 2009–14f 43
Table 18: Forecast of UK commercial property insurance market GWP, 2010–14f 45
Table 19: Forecast of accident year combined operating ratio in the commercial property insurance market (%), 2010–14f 46


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