Moody's Outlook 'Stable' For U.K. P-C Sector

Moody's Outlook 'Stable' For U.K. P-C Sector

NU Online News Service, Dec. 28, 2:43 p.m. EST?Moody's Investors Service said it will keep its "Stable" outlook for the United Kingdom property-casualty insurance sector despite its concern over some softening of prices and weak balance-sheet problems.[@@]

"Capitalization of U.K. non-life insurers is now at fundamentally lower levels than in previous years," Moody's assessed, "driven by a combination of weak investment markets and, in some cases, by substantial losses from exceptional loss events."

In its report, "U.K. Property & Casualty Insurance: Industry Outlook," Moody's predicted that near-term results for the overall sector are "likely to worsen" as rates in some lines soften. Currently, the agency also noted, competition is increasing markedly in many areas?particularly in retail business.

On commercial lines, profitability should remain at good levels. However, these lines continue to require rate hikes to keep pace with high rates of claims inflation, New York-based Moody's observed.

Moody's cautioned that issues related to the "compensation culture," including losses from U.K.-based asbestos exposure, continue to negatively impact the industry.

The end result is that the market remains "somewhat in a state of flux," Moody's said. Many players have switched out of or changed their appetite for some business lines, while new players have entered the market through acquisition of discarded lines or absorption of new business, the rating agency added.

Many companies have also gone through changes in their management teams, Moody's noted, which reflects a departure from a late '90's "expansive" environment, and are moving toward putting more emphasis on cost control and business focus.

"We do not expect capital pressures to necessarily ease soon," Moody's said in its forecast. The rating firm said it expects the U.K. p-c sector's earnings to continue to be at relatively low levels in the near term, noting that investment yields look set to remain low and premium rates have started to plateau or reduce in some lines.