AM Best has reaffirmed a stable near-term outlook for the United Kingdom’s non-life insurance sector. One of the key developments supporting this assessment was the increase in the Ogden discount rate in late 2024, raised to 0.50%.
The revision impacts compensation calculations for long-term personal injury claims and provided financial relief for insurers, particularly those with minimal reinsurance coverage.
Several insurance companies reported one-time reserve releases as a result, which strengthened their year-end financial results.
AM Best views the change as a temporary improvement to underwriting margins. However, it warns that pricing competition may erode these gains as insurers adjust rates in response to market conditions.
The UK motor insurance market, historically marked by narrow margins and price-focused competition, experienced a recovery in 2024 following two years of substantial losses.
Premium increases and stricter underwriting contributed to modest profitability. However, this improvement may not be sustainable.
Data from the Association of British Insurers (ABI) shows average premiums began to decline in the second half of 2024. AM Best expects this trend to extend into 2025, creating continued pressure on underwriting results.
In contrast, the home insurance market has not kept pace with cost increases. Despite inflation and a high frequency of extreme weather events—including the largest number of named storms in nearly a decade—premium levels remain insufficient.
ABI figures indicate that inflation-adjusted home insurance pricing in 2024 remained below 2017 levels, while claims costs have increased by over 50%.
Although the Flood Re initiative has reduced some insurer exposure, AM Best notes the sector still lacks necessary pricing adjustments to restore equilibrium.
Economic indicators also present challenges. The UK ended 2024 with inflation at 2.5%, as reported by the Bank of England, but economic growth remains weak. Continued stagnation may suppress demand for personal and commercial insurance. AM Best also identifies global uncertainty—especially from shifts in US foreign policy—as a potential trigger for inflation via supply chain disruption, which could further complicate premium adequacy.
Investment performance has offered some offset. While interest rates have begun to decline gradually, they remain well above long-term averages. Following multiple rate increases from late 2021 to mid-2023, the Bank of England has adopted a cautious easing strategy, with the base rate at 4.5% as of February 2025. AM Best highlights that this environment allows insurers to improve investment income without taking on excessive risk.
In conclusion, AM Best’s stable outlook reflects improved investment returns and regulatory support, balanced against weak economic growth, unresolved pricing issues in certain lines, and ongoing competitive pressure. Sustained profitability will depend on disciplined pricing and responsive strategy across market segments.
