Reserve hikes push Lloyd’s motor COR to 151.5%

Lloyd’s posted a calendar-year combined ratio for motor business of 151.5% in 2010.

The accident year combined ratio was 114.8%, but prior-year reserve strengthening added 36.7 points to the calendar-year ratio. By comparison, reserve strengthening added 3.9 points to Lloyd’s motor combined ratio in 2009.

In its annual report, Lloyd’s attributed the motor performance to rising bodily injury claims, fuelled by claims farming, the growing presence of credit-hire companies and fraud.

While Lloyd’s noted that rates had risen to respond to the trend, strong competition, fuelled by price comparison sites, had hampered the industry’s efforts to return to profitability.

Lloyd’s said specialist motor syndicates strengthened prior-year reserves in 2009, but added that the severe claims inflation had outpaced the allowance built into the reserves resulting in further large reserve hikes in 2010.

Speaking at a press conference announcing the results, Lloyd’s finance director Luke Savage stressed that Lloyd’s was not alone in suffering from rising bodily injury claims.

“Just about every insurer that I have heard of, apart from one, has admitted they are having similar problems,” he said. “That is why we welcome the news yesterday that he government intends to implement the Jackson review in full, which should hopefully put an end to claims farming and after-the-event insurance cover, which has helped to fuel what has been a pretty staggering rate of claims inflation.”

He added that the average injury cost in motor claims had risen from £2,000 to around £4,000 over the past few years, and the number of people supposedly in the car during the accident rise from 1 to 1.8.

However, Savage also pointed out that motor only makes up a small part of Lloyd’s overall business. Motor accounted for £1.1bn of gross written premium in 2010 – 5% of the £22.6m total gross written premium for the market.

Lloyd’s as a whole posted a combined ratio of 93.3% for 2010, up from 86.1% in 2009 as a result of heavy natural catastrophe losses.

Motor was the only line to post a combined ratio of more than 100% for 2010.