Rising costs that have been pushing up the price of motor insurance and causing financial pain for underwriters have started to ease, according to Aviva.
Earlier this year a number of insurers flagged the rising costs of parts, labour and replacement cars. car insurance prices have increased in response — according to comparison site confused.com, they are going up at an annual rate of 14 per cent.
But on Wednesday Aviva, one of the UK’s largest motor insurers, said that these pressures were easing. “Inflation peaked in the second quarter at 12 per cent and is coming back to the 8-10 per cent range,” Aviva chief executive Amanda Blanc told the Financial Times.
Blanc said the improvement is because of the used car market. Prices for used cars were rising at an annualised rate of around 29 per cent earlier this year, but that has come down to around 11 per cent. “We’re starting to see supply chains ease,” said Blanc.
The UK motor insurance market has been under strain this year. As well as rising claims costs, underwriters have been dealing with new rules on “price walking” — the practice of charging existing customers more than new ones.
Blanc said Aviva had increased prices by 15 per cent in the year because of inflation. But the higher prices have had an impact on sales, with income from UK personal insurance premiums flat so far this year.
Aviva published its results for the first nine months of the year on Wednesday. In general insurance — which includes the motor business — premium income rose 10 per cent thanks to growth in sales to business customers. The combined ratio — a measure of claims and costs as a proportion of premiums — improved by nearly 2 percentage points to 94.3 per cent.
Aviva finished the period with a Solvency II capital ratio — which measures capital available as a proportion of the minimum required — of 223 per cent. The insurer said that its balance sheet had dealt well with the recent market turmoil: “Our capital and liquidity positions have been tested by recent market conditions and have been shown to be robust and resilient,” it said in a statement.
Although Aviva has an asset management business, it does not sell the liability driven investment products for pension funds that were at the heart of the recent market turmoil.
Aviva kept its dividend policy unchanged, and plans to update the market on its share buyback plans next year.
The company’s shares fell 2.2 per cent in early trading in London.
Abid Hussain, analyst at Panmure said the update was “a mixed bag”. While there was strong growth in the general insurance business, he said, “on savings & retirement, the picture is not so good with net outflows and lower new business premiums.”