Competition in UK Commercial General Insurance 2007

This brief analyzes the competitive situation within the UK commercial general insurance market across key commercial lines, providing insight into competitor strategies and the major issues affecting the market.

Report Highlights
Royal & SunAlliance retained its position as the UK's largest commercial insurance provider in 2006, although it saw a decline in GWP. Its total commercial premium income fell by 4.3 percentage points to £2,250m. On average, commercial insurers ranked 112
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Introduction 2
The market saw a number of mergers and acquisitions, many involving brokers 2
AXA acquired numerous commercial brokers in 2007, reinforcing its position in the SME sector 2
Groupama acquired a majority stake in Lark Group in August 2007 2
Direct Line began to offer business insurance in 2007 2
Equity Insurance Group recorded a large number of small-scale acquisitions 3
Towergate continued to acquire numerous brokers in 2007 3
Other brokers acquiring included Jelf, Oval, Aon and JLT 3
A number of insurers announced job cuts in 2007 in order to make cost savings 4
The largest three UK commercial insurers all recorded a decline in commercial insurance GWP in 2006 4
Royal & SunAlliance retained its position as the largest UK commercial insurance provider in 2006 4
Norwich Union recorded a fall of 3.3% in commercial insurance GWP 5
Zurich saw premium income fall across all of its commercial books in 2006 5
AXA recorded the highest increase in GWP of any top 10 UK commercial insurer in 2006 5
Allianz recorded a significant decline in commercial insurance GWP in 2006 as its commercial property book contracted 5
New Hampshire recorded a 1.7% decline in commercial GWP in 2006 6
BUPA suffered a 6.4% decline in GWP as conditions worsened in the group accident and health market 6
ACE recorded GWP growth of 2.6% 6
NFU Mutual recorded a strong set of results in 2006, increasing commercial motor, liability and property GWP 6
NIG recorded the second highest GWP growth rate among the top 10 UK commercial insurers 6
Softening market conditions meant numerous insurers ranked between 11 and 20 saw GWP decline, although a handful saw GWP growth 7
A number of insurers ranked between 11 and 20 saw GWP decline due to the poor market conditions 7
Groupama, Standard Life, Ecclesiastical and CNA saw commercial GWP increase in 2006 7
Most of the top 10 commercial insurers had a good mix of commercial and personal business in 2006 9
The profitability of the top 10 accident and health insurers deteriorated in 2006 due to increases in loss ratios 11
The top 10 accident and health insurers recorded an average loss ratio of 63.7% in 2006, with the majority seeing an increase in their loss ratio 11
The average loss ratio of 63.7% in 2006 was a 3.5 percentage point increase from 2005 11
Standard Life combined a growing book of business with a smaller loss ratio 11
Combined Insurance Company of America was the only top 10 accident and health insurer to see a loss ratio reduction other than Standard Life 11
Five insurers saw loss ratios increase at the same time as their books grew 11
New Hampshire and BUPA saw loss ratios increase while their books declined in size 12
The top 10 accident and health insurers recorded an average expense ratio of 29.9% in 2006 14
Three of the top 10 accident and health insurers saw their expense ratios decrease while their books grew 14
Combined Insurance Company of America saw its book shrink and its expense ratios reduce 15
Norwich Union, SimplyHealth and AXA saw expense ratios increase as their books expanded 15
Two insurers saw their expense ratios increase alongside a shrinking book of business 15
The top 10 accident and health insurers recorded an average combined ratio of 93.6% in 2006, although two of the biggest players saw their ratios move above 100% 17
The top 10 accident and health insurers achieved an average combined ratio of 93.6% in 2006 17
Groupama and Standard Life both saw their combined ratios decrease in 2006 and their books grow, but Groupama's ratio remained above 100% 18
Combined Insurance Company of America's loss ratio fell by 5.8 percentage points 18
Six of the top 10 insurers saw their combined ratios increase in 2006 18
The performance of the top 10 liability insurers was mixed in 2006 with some seeing better profits while a few players recorded significant losses 20
The average loss ratio of the top 10 UK liability insurers rose by 9.7 percentage points in 2006, but Norwich Union and QBE recorded large reductions 20
The average loss ratio for the top 10 liability insurers rose by 9.7 percentage points in 2006 20
Norwich Union and QBE saw the largest improvements in their loss ratios 20
Zurich saw the largest deterioration in its loss ratio in 2006 21
The average expense ratio of the top 10 liability insurers increased by 3.2 percentage points in 2006, with New Hampshire recording the largest increase 23
The average expense ratio rose by 3.2 percentage points in 2006 to 30.5% 23
New Hampshire recorded the largest increase in its expense ratio but remained one of the most efficient players 23
Royal & SunAlliance, AXA and Allianz were the least efficient UK liability insurers in 2006 24
The average combined ratio of the top 10 UK liability insurers increased in 2006, with Zurich and AXA seeing the two biggest increases 26
The average combined ratio increased in 2006 by 12.9 percentage points to 102.1% 26
Norwich Union and QBE bucked the trend and recorded improvements in their loss ratios 26
Six of the top 10 UK liability insurers recorded combined ratios below 100% in 2006 27
Four insurers recorded combined ratios in excess of 100% in 2006 27
The top 10 motor insurers made the move into profitability in 2006 on the back of reductions in losses and expenses 29
The average loss ratio among the top 10 UK motor insurance providers declined in 2006 with AXA, Norwich Union and Churchill recording the biggest improvements 29
In 2006, the average loss ratio of the top 10 UK motor insurers fell by 3.3 percentage points to 71.1% 29
AXA, Norwich Union and Churchill recorded the strongest loss ratio reductions 29
Four insurers recorded loss ratio deterioration 31
The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006, with Churchill, AXA, NIG and Royal & SunAlliance recording above-average reductions 33
The average expense ratio of the top 10 UK motor insurers declined by 0.7 percentage points in 2006 33
Churchill, AXA, NIG and Royal & SunAlliance recorded above-average expense ratio decline 33
Norwich Union, Zurich and NFU Mutual recorded the highest increases in their expense ratios 34
The average combined ratio of the top 10 motor insurers fell by four percentage points in 2006, with AXA and Churchill seeing significant declines 36
The average combined ratio of the top 10 motor insurers declined by four percentage points in 2006 36
AXA and Churchill recorded significant reductions in combined ratio in 2006 37
NIG, Direct Line and Zurich recorded combined ratio increases 37
The top 10 pecuniary loss insurers saw their profitability increase 39
Pecuniary loss combined ratios increased as expense ratios rose and loss ratios fell 39
The average loss ratio of the top 10 pecuniary loss insurers declined by 0.2 percentage points to 29.4% in 2006 39
Norwich Union and Lloyds TSB achieved strong loss ratio reductions 39
Direct Line and Pinnacle recorded the highest loss ratio increases 40
The average expense ratio of the top 10 pecuniary loss insurers increased to 65.3% in 2006, with Direct Line, Allianz and St Andrew's seeing the highest individual increases 42
The average expense ratio of the top 10 pecuniary loss insurers increased by 1.8 percentage points to 65.3% in 2006 42
GEFI, Norwich Union and UK Insurance recorded double-digit increases in their expense ratios 42
Direct Line, Allianz and St Andrew's achieved strong expense ratio reductions 43
Combined ratios increased among the leading pecuniary loss insurers in 2006 45
The average combined ratio among the top 10 pecuniary loss insurers rose by 1.6 percentage points in 2006 45
Allianz, Direct Line, St Andrew's and Lloyds TSB reduced their pecuniary loss combined ratios 45
GEFI, UK Insurance and Pinnacle all experienced increases in their combined ratios 46
Combined ratios rose for the top 10 property insurers in 2006 due to rising expenses and claims however most players remained in profitable territory 48
The average loss ratio of the top 10 property insurers increased by 0.1 percentage points in 2006, with Direct Line, Zurich and Norwich Union recording the biggest reductions 48
The average loss ratio of the top 10 property insurers increased by 0.1 percentage points 48
Norwich Union, Direct Line and Zurich recorded strong loss ratio reductions 48
St Andrew's, NIG and Royal & SunAlliance recorded high loss ratio increases 49
The average expense ratio of the top 10 property insurers increased in 2006, with Norwich Union and AXA recording the largest individual increases 51
The average expense ratio of the top 10 property insurers rose by 1.4 percentage points in 2006 51
Norwich Union, AXA and Lloyds TSB saw their expense ratios increase, but they achieved GWP growth 51
Four of the top 10 property insurers achieved expense ratio reductions 52
The average combined ratio of the top 10 property insurers rose in 2006, with Norwich Union, AXA and NIG seeing the largest increases 54
Among the top 10 UK property insurers, the average combined ratio rose by 1.5 percentage points in 2006 54
Norwich Union, AXA and NIG recorded high combined ratio growth 54
Three insurers were able to defy the property market trend and reduce their combined ratios 55
APPENDIX 58
2005-6 definitions for lines of business 58
Accident & health 58
Medical expenses 58
HealthCare cash plan 58
Travel 58
Personal accident or sickness 58
Motor 58
Total private motor 58
Total commercial motor 59
Private motor comprehensive 59
Private motor non-comprehensive 59
Motorcycle 59
Fleets 60
Commercial vehicles (non-fleet) 60
Property 60
Total commercial property 60
Household and domestic all risks. 61
Consequential loss (i.e. business interruption) 61
Financial/Pecuniary loss business 61
Total personal financial loss business 61
Total commercial financial loss business 61
Legal expenses 61
Fidelity and contract guarantee 62
Liability business 62
Employers liability (including the employers liability part of mixed liability packages but excluding mixed commercial packages) 62
Professional indemnity (including directors' and officers' liability and errors and omissions liability) 62
Public and products liability 62
Mixed commercial package 62
Total personal 63
Total commercial 63
Pre-2005 definitions for lines of business 63
Accident and health 63
Individual accident and health 63
Group accident and health 64
General liability 64
Motor 65
Pecuniary loss 65
Total pecuniary loss figures 65
Property 66
Premium income measures 67
Earned premiums 67
Gross Premium 67
Net Premium 67
Written premiums 67
2005 FSA Return changes 67
Major changes in FSA Return categories and their impact 67
Market size 68
Changes in market size information 68
Market size methodology 68
Lloyd's players and underwriting result figures 68
Competitor data 69
GWP versus GEP reporting 69
Total personal and total commercial business 71
Home-Foreign, overseas and facultative reinsurance business 71
Further reading 71
Ask the analyst 71
Datamonitor consulting 72
Disclaimer 72
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Table 1: GWP of UK commercial insurers ranked 11-20, 2005-6 8
Table 2: Split between commercial and personal business for the top 10 commercial insurers, 2006 10
Table 3: Change in premium income compared to change in loss ratio for the top 10 UK accident and health insurers, 2005-06 14
Table 4: Change in premium income compared to change in expense ratio for the top 10 UK accident and health insurers, 2005-06 17
Table 5: Change in premium income compared to change in combined ratio for the top 10 UK accident and health insurers, 2005-06 20
Table 6: Change in premium income compared to change in loss ratio for the top 10 UK liability insurers, 2005-06 23
Table 7: Change in premium income compared to change in expense ratio for the top 10 UK liability insurers, 2005-06 26
Table 8: Change in premium income compared to change in combined ratio for the top 10 UK liability insurers, 2005-06 29
Table 9: Change in premium income compared to change in loss ratio, top 10 UK motor insurers, 2005-6 33
Table 10: Change in premium income compared to change in expense ratio, top 10 UK motor insurers, 2005-6 36
Table 11: Change in premium income compared to change in combined ratio, top 10 UK motor insurers, 2005-6 39
Table 12: Change in premium income compared to change in loss ratio for the top 10 UK pecuniary loss insurers, 2005-06 42
Table 13: Change in premium income compared to change in expense ratio for the top 10 UK pecuniary loss insurers, 2005-06 45
Table 14: Premium income compared to change in combined ratio for the top 10 UK pecuniary loss insurers, 2005-06 48
Table 15: Premium income compared to change in loss ratio for the top 10 UK property insurers, 2005-06 51
Table 16: Change in premium income compared to change in expense ratio among the top 10 property insurers, 2005-06 54
Table 17: Change in premium income compared to change in combined ratio for the top 10 UK property insurers, 2005-06 57

Figure 1: Groupama and Standard Life grew significantly on the back of strong performances in the group accident and health market in 2006 8
Figure 2: Royal & SunAlliance recorded the highest commercial GWP in 2006, although Norwich Union was larger overall 9
Figure 3: Only two of the top 10 UK accident and health insurers achieved better loss ratios in 2006 13
Figure 4: Numerous UK accident and health insurers saw their expense ratios increase in 2006 16
Figure 5: Six of the top 10 UK accident and health insurers recorded higher combined ratios in 2006 19
Figure 6: Norwich Union achieved the biggest reduction in its liability loss ratio in 2006 22
Figure 7: New Hampshire saw the largest increase in its expense ratio in 2006 25
Figure 8: Most of the top 10 UK liability insurers saw their combined ratio deteriorate in 2006 28
Figure 9: While the average loss ratio of the top 10 UK motor insurers fell in 2006, NIG and Direct Line saw increases in their ratios 32
Figure 10: Norwich Union saw the biggest increase in private motor expense ratio in 2006 35
Figure 11: NIG saw the biggest increase in combined ratio in 2006 38
Figure 12: A number of UK pecuniary loss insurers recorded significant GWP decline in 2006, although some were also able to decrease their loss ratios as a result 41
Figure 13: Direct Line achieved strong GWP growth and reduced its expense ratio in 2006, although fellow RBS subsidiary UK Insurance did not fare as well 44
Figure 14: Allianz, Direct Line and St Andrew's achieved the strongest pecuniary loss combined ratio reductions in 2006, largely through decreasing their expense ratios 47
Figure 15: Direct Line, Zurich and Norwich Union saw the best decreases in loss ratio in 2006 50
Figure 16: St Andrew's was the only insurer to successfully reduce its expense ratio and at the same time increase its property insurance GWP in 2006 53
Figure 17: Direct Line and Churchill saw the biggest reductions in combined ratio in 2006 56
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