LV=’s John O’Roarke: Motor reserve releases could dry up this year

Reserve releases, which have been propping up the underwriting performance of UK motor insurers, could start to dry up this year, according to LV= general insurance managing director John O’Roarke.

Speaking to Insurance Times following the release of LV=’s results, O’Roarke said that although motor insurers’ reported combined operating ratios (CORs) were generally healthy, the current year CORs, which exclude reserve releases, were loss-making for most companies and contained “some quite disturbing indicators”.

He said: “What nobody can tell with any certainty is how much reserve release will be available to compensate for that poor result.

“Some of the bigger players have continued to put through quite considerable reserve releases. The analysts are looking at the market and saying ‘at some stage  those reserves will be depleted’.  I would suggest 2014 is probably the year when that comes to pass.”

Good news for motor

Despite this, O’Roarke pointed to some good news on the horizon for motor insurers. One is that rates are starting to harden.

O’Roarke said: “Rates are moving up now. We have put our rates up in several iterations over the last six months and in terms of market response to that we have seen the general level of market pricing drifting up. It has not been a sea-change but there is certainly a change in sentiment and I don’t see anybody pricing totally out of step with the market at the moment.”

Another is that while last year’s whiplash-busting legal reforms have yet to have the desired effect personal injury (PI) claims frequency, claims costs for the less severe PI claims are starting to reduce.

O’Roarke said: “There is a general level of disappointment that PI frequency hasn’t really been impacted by Laspo [The Legal Aid, Sentencing and Punishment of Offenders Act]  but I think what we have seen is that the average cost per claim on those attritional PI claims has fallen considerably.”

Commercial growth plans

Even so, LV= is continuing to diversify its portfolio away from motor insurance, which made up 69% of its gross written premium in the first half of 2014 (H1 2013: 75%).

The driving force of this diversification is SME commercial business, which grew to 16% of LV=’s general insurance portfolio in the first half of 2014 (H1 2013: 13%), with a gross written premium of £117m.

O Roarke said the company expects to double its commercial book over the next three to five years.

One area of expansion for the company has been commercial property owners’ business.

O’Roarke said: “We have moved into insuring larger commercial properties. We  are quite happy taking on £50m risks there in commercial property.

“At the same time we have expanded our appetite for it, we have also expanded the range of relationships that we have with brokers and particularly moving up to deal with some of the larger brokers.”