Agenda: Pricing strategies

Tony Cornell

The UK commercial insurance market is worth about £15bn and there has been little change in its overall size since 2002. In 2001-2002, the market increased by 75% reversing years of losses into a platform for a long period of profitability. In the previous 10 years, commercial lines business produced heavy losses. Insurers used the windfall premium increases between 2002 and 2004 to strengthen reserves and since 2004 have been trading profitably in spite of a prolonged softening market.

Between 2005 and 2007, the underlying profits were still good but, since then, these have been propped up by reserve releases from the good years. At the end of this year, barring a major weather incident, the commercial sector would have enjoyed some nine years of profitable trading - a halcyon run that has not occurred since the 1970s. Of course, rate reductions, the recession, erosion of excess reserves, increasing court awards, rising taxation and solvency requirements, low interest rates

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