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Fitch stable on UK non-life sector

Rating agency Fitch has suggested the UK non-life market should enjoy the good times while it can, warning that the improving fortunes of the sector in the last two financial years are unlikely to be sustained.

“The advantage of being at a favourable point of the insurance pricing cycle has been buttressed by benign financial markets, a lack of (domestic) catastrophes and favourable reinsurance renewal terms,” said Fitch in its report “The UK Non-Life Market: Enjoy it While it Lasts – But not too much”.

“This combination of circumstances has allowed insurers to show improved results for 2004 and, in many cases, to rebuild their capital strength,” the report continued.

But Fitch said it expects the industry to face fresh challenges in the coming year. In a now mature market, price competition is likely to increase, squeezing profit margins further despite cost-cutting measures already set in place by insurers.

As in all waning phases of the pricing cycle, insurers must beware of writing under-priced business that will later require reserve strengthening, such as that relating to asbestos and the period 1997-2001, which will continue to be a drag on operating results,” the agency said.

Regulation and litigation costs, together with risks relating to asbestos and flooding would also challenge the sector, while downward pressure on pricing could be compounded by the increase in Internet and telesales of non-life premiums.

Nonetheless, Fitch said the industry would stay strong despite these threats.

Fitch believes the recovery in the fortunes of the UK non-life industry over the last two years should give it the capacity to ride out the challenges which it will face over the next 12 months,”concluded the agency as it maintained its stable outlook on the sector.

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