As insurers’ 2016 results have started coming in, we can start piecing together an overall picture of how 2016 looked and what we may expect from 2017.
Results have largely looked good
The overall picture among the large insurers’ 2016 results has been, by many measures, a positive one. RSA demonstrates this well, having declared that it “delivered the best underwriting result in over a decade” at £123m and a COR of 95.4%.
AXA can also smile, with a 12% increase in underlying profit and a huge 8.1% GWP growth in its book. Direct Line Group (until the news on the discount rate crashed the party) emerged with a “pre-Ogden” 11.1% increase in operating profit and a GWP book growth of 3.9%. Likewise, pre-Ogden, Aviva achieved the double of growth and improved health, with UK & Ireland operating profit up 23% and a 7% bump in net written premiums. The insurer hailed its 2016 performance as “the best for 10 years.”
Insurers are targeting CORs in the mid-90s
The results reveal how far insurers have come, now deep in the post-crisis era of the ‘new normal’ where above-100% CORs are unacceptable. Direct Line Group forecasts 93–95% in its COR performance. RSA’s outlook, following 2016, is for its COR to remain below 94%. Aviva didn’t improve its COR performance in 2016 but kept it stable at 95.3% (2015: 95.1%).
The Ogden Discount rate didn’t get the memo
The big news emerging from this results season is how the mood, and the otherwise positive-looking results, has been soured by the radical shift in the Ogden discount rate from 2.5% to -0.75%. It represents a direct new cost to insurers until the calculation can potentially be re-addressed, as well as a huge dose of that factor the industry is particularly uncomfortable with: uncertainty.
Posted as a one-off exceptional event in costs by insurers that included discount rate analysis in their results, the impact significantly changes figures for those with large motor insurance exposure. Direct Line Group slashed its after-tax operating profit by £174m, with a motor book slammed with a 13.9 point jump in COR. The impact for Aviva was greater still – a £385m hole in after-tax operating profit, spinning its otherwise stable UK COR picture upward by 12.4 points.
Insurers looking to the future
An element we can expect to see increasingly drawn attention to in insurers’ strategies, with the shoots of insurtech growing, is the embrace of new propositions and technology. AXA and Direct Line Group in particular stand out here among the large players. AXA is currently involved in home contents proposition Trov, workplace wellbeing app Biobeats, Doctor@hand (digital access to GPs), and claims tracking tool eServe. Direct Line Group, meanwhile, has unveiled a partnership with electric car manufacturer Tesla – discussed in more detail in our article Direct Line announces partnership with Tesla.