FSA’s PRO outlines insurance sector risk

by Gill Montia

Story link: FSA’s PRO outlines insurance sector risk

The risks faced by the UK’s insurance industry have been highlighted in the first Prudential Risk Outlook (PRO) to be published by the Financial Services Authority (FSA).

The regulator says that UK life insurers continue to face a number of medium to long-term pressures on profitability, explaining: “In particular, while new business flows are reportedly positive (up around 5% in the first nine months of 2010), net cash flows for the sector (premium inflows less claims and surrenders) … have been negative since 2008.”

According to the study, increased annuity payouts as people retire, “persistently” subdued demand for long-term savings products, increased competition from other types of products, and the decline of products such as with-profits policies, are all to blame.

For general insurers, the PRO describes the sector as “well capitalised” but notes the need to focus on profitable underwriting, as investment income remains under pressure.

In addition, the Outlook states: “Claims inflation is likely to continue across general insurance lines … for example, although motor insurance premiums have risen by a third over the past 12 months, claims are estimated to be up 30% from 2009.”

Five key messages to insurers from the FSA are summarised in the PRO section B page 54.