Fitch upgrades non-life sector

Fitch has upgraded its rating outlook for the UK non-life sector from negative to stable.

The revision reflects rating agency’s expectation that the sector's earnings will stabilise this year, due to a combination of less volatile investment returns and higher premiums across a broad range of product lines.

Macroeconomic conditions, while still weak by many measures, have stabilised enough to support a stable rating outlook, in Fitch’s view. The agency says that this trend is likely to be mirrored by similar upgrades to Stable for a number of individual non-life companies over the next twelve to eighteen months.

"While individual companies' earnings remain under pressure, the sector has remained resilient, aided by the diversity of its products and markets, and in particular by the London Market, where international business has enjoyed a strong performance in 2009. The sector's preservation of capital strength is also a key factor leading to the change in Outlook," said Martyn Street, associate director in Fitch's insurance team.

The UK non-life sector continues to face short -term challenges such as uncertain levels of investment return, diminishing prior-year reserve releases, the possibility of further losses from recession-and weather-related claims and continued market competition. However, Fitch has been encouraged by preliminary 2009 results, growing evidence of improved pricing and discipline being displayed by insurers in managing their respective businesses through this challenging part of the underwriting cycle.

Chris Waterman, managing director in Fitch's insurance team, said: "If the UK economy continues to emerge from recession, it is possible that recession-related claims for short-tail insurance classes could already be close to their peak.”

“The next few years will be a period of differentiation for the UK non-life sector, where companies with strong capital, diversified earnings streams and successful underwriting facilities will carry a competitive advantage."