UK Commercial Property Insurance: Market Dynamics and Opportunities

UK Commercial Property Insurance: Market Dynamics and Opportunities

Code: VF-VF0076IA | Published: Jul-2016 | Pages: 47 | Verdict Financial
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The commercial property insurance sector has endured low premium rates for several years and 2015 has been no different. As a result, the value of the market has experienced little change and gross written premiums (GWP) are forecast to grow at a slow and steady rate. Commercial property insurance is very much a self-serving market, with progress only achieved if it creates opportunities for itself, i.e. more properties to insure. Currently, the construction industry continues on an upward trend, increasing output volumes, which suggests confidence has returned to the sector, although the number of new orders has declined from last year, meaning it remains to be seen if the current buoyancy of the market will be short-lived. The prospect of strong underwriting returns has encouraged more competitors to enter the marketplace, which in turn has driven down premium rates to stubbornly low levels, and a relatively benign claims environment indicates a rate rise may be a long way off. Although this is encouraging for insurers, the cost of claims has risen, meaning incidents of peril are becoming even costlier for providers to compensate. Coupled with this are the effects of the severe weather at the beginning of 2016, which is likely to impact the market in the immediate year going forward. The UKs decision to exit the EU will also undoubtedly affect foreign investment in commercial property and the business prospects of UK-based insurers. The commercial property space has demonstrated signs of both optimism and unpredictability.

Key Findings
- The commercial property market amounted to just over Pound5bn of GWP in 2015.

- Lloyds of London wrote Pound568m of commercial property insurance GWP in 2015.

- Gross claims paid in 2015 amounted to Pound3.2bn.

- The market is forecast to grow steadily, reaching GWP of Pound5.4bn by 2018.

Verdict Financials "UK Commercial Property Insurance: Market Dynamics and Opportunities" report provides an in-depth analysis of the UK commercial property insurance market. The points discussed include the size of the market, performance ratios, and changes in premiums, claims, incidents of peril, regulations, and opportunities. The report provides a thorough overview of the market along with future forecasts.

Reasons To Buy
- Benchmark yourself against the rest of the market.Ensure you remain competitive as new innovations and significant market developments occur.

- Be prepared for how the commercial property sector could be affected following the UKs decision to leave the EU.

Key Highlights
- Benchmark yourself against the rest of the market.Ensure you remain competitive as new innovations and significant market developments occur.

- Be prepared for how the commercial property sector could be affected following the UKs decision to leave the EU.

Table of Contents

The commercial property market remains stuck in a soft cycle
Key findings
Critical success factors
The market is beginning to see signs of growth as commercial property lending increases
There was a 14.6% increase in the value of UK commercial property over 2013-14
The commercial property market performed better then household
2015 saw an increase in GWP, showing signs of a bigger market and stronger economy
Commercial property insurance GWP marginally increased in 2015
Core commercial property insurance grew by 1.8% in 2015
Lloyds of London had an 11.0% share of the commercial property insurance market in 2015
Although GWP grew, profitability is being challenged
COR has increased to 103.5% in 2015
Weather claims increased the loss ratio
Commission rates keep the expense ratio high
The claims environment remains benign, although costs are increasing
2015 saw a Pound6m increase in gross claims paid
The number of claims reported continues on a downward trend
Claims costs have grown, with significant increases in fire and business interruption
Commercial property set to benefit from increased lending rates
UK commercial property lending rose by almost 20%, due in part to non-bank groups
Alternative UK real estate has also benefited from increased commercial property lending
Investors are turning to regional office markets for commercial property purchases
Commercial property investors prefer renting to ownership
The construction industry continues on an upward trend
The volume of construction output increased by 6.5% in 2015
Orders for new construction show a slight decline from 2014
Immigration and vacant property rates could prove detrimental to the commercial sector
Retail groups are driving the UK commercial property market
Retailers account for almost 50% of the UK commercial property sector
E-commerce is driving uptake of large storage units
Developing more investment opportunities will be difficult in an uncertain regulatory environment
Commercial property GWP is expected to reach Pound5.5bn by 2020
The uncertain regulator and economic environment is likely to have adverse effects
Insurers face a fight for business with foreign investors
Regional office markets are predicted to perform strongly in 2016
Abbreviations and acronyms
Gross premium
Written premiums
Primary and secondary research
GWP and COR estimates and forecast methodology
Further reading
About Verdict Financial

List of Tables

Table 1: UK property insurance market GWP (Poundm), 2011-15
Table 2: UK commercial property insurance market GWP, 2011-15
Table 3: UK commercial property insurance market GWP by sector (Poundm), 2011-15
Table 4: Lloyds of London commercial property GWP (Poundm), 2014-15
Table 5: UK commercial property insurance market COR, 2012-15
Table 6: UK commercial property and commercial motor expense ratios, 2012-15
Table 7: Gross claims paid and incurred (Poundm), 2012-15
Table 8: Number of claims in the UK property insurance market, by peril (000s), 2011-15
Table 9: Summary of UK property insurance gross claims incurred (Poundm), 2011-15
Table 10: Proportion of residential and commercial property rented in the UK, 2004 and 2014
Table 11: Volume of construction output by sector in Great Britain (Poundm, seasonally adjusted), 2011-15
Table 12: Volume of orders for new construction by main contractors in Great Britain (Poundm, seasonally adjusted) 2011-15
Table 13: Population estimates summary for the UK, mid-2005 to mid-2015
Table 14: Distribution of all (owner-occupied and invested) commercial property, 2014
Table 15: Verdict Financial forecast for commercial property GWP (Poundm), 2015-20f
Table 16: Ownership of commercial property, by investor type, 2014

List of Figures

Figure 1: The worth of the UKs stock of commercial property rose to Pound787bn in 2014
Figure 2: The total property insurance market grew by 0.5% in 2015
Figure 3: Market GWP increased by 3.4% to Pound5.1bn in 2015
Figure 4: Core commercial property insurance accounted for just under three quarters of the market in 2015
Figure 5: The commercial property insurance market recorded a COR of 103.5% in 2015
Figure 6: High commission levels kept the commercial property insurance expense ratio above 44% in 2015
Figure 7: Commercial property gross claims paid fell at an average of 4.5% per annum between 2012 and 2015
Figure 8: Claims numbers have consistently fallen in the property space over the past five years
Figure 9: Total claims in the property sector increased by just 1.1% in 2015
Figure 10: Over 50% of commercial property occupiers in the UK rent rather than purchase
Figure 11: The rise in new housing developments shows signs of a buoyant construction industry
Figure 12: 2015 recorded a fall in new orders after two successive years of expansion
Figure 13: The UK population has increased by almost 10% from 2005
Figure 14: Commercial property GWP will reach Pound5.5bn in 2020
Figure 15: Recent years have seen office investment volumes increase despite a fall in 2015
Figure 16: The speculative pipeline for regional office development has picked up pace in 2016

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