Reuters: Private Equity: UK car insurers head for 20-year losing run -E&Y

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UK car insurers head for 20-year losing run -E&Y Jun 27th 2012, 00:01 Tue Jun 26, 2012 8:01pm EDT * Sees no return to profit until at least 2014 * Says half of industry could have new owners within 3 years LONDON, June 27 (Reuters) - Britain's motor insurance industry is unlikely to return to profitability before 2014, extending its loss-making run to 20 years, consultants Ernst & Young said on Wednesday. A two-year rise in prices that fuelled hopes of a turnaround ended in the first half of 2012, condemning car insurers to at least two more years of underwriting losses, E&Y said in a report. Low investment returns and stable premium rates meant the industry "doesn't look set to turn a profit in 2012 or 2013", said Catherine Barton, a partner in E&Y's financial services actuarial team. Squeezed by weak prices amid intense competition and steadily rising claims, the industry has paid out more than it has taken in premiums every year since 1994, according to the Association of British Insurers. Some insurers have made an overall profit due to good investment returns, although that source of income has also come under pressure since central banks slashed interest rates in the 2008 banking crisis. E&Y said claims look set to keep rising ahead of legislative changes in April 2013 aimed at curbing "no win, no fee" lawyers, blamed by insurers for a surge in costly personal injury claims. It also said half the motor insurance industry could change ownership in the next three years because its relatively low reserving requirements make it attractive under stricter capital rules due to come into force in 2014. The industry's low profitability could also attract bargain-hunting private equity buyers, the consultancy added. Britain's biggest motor insurer, Royal Bank of Scotland's Direct Line, is scheduled to float on the stock market this year, with analysts expecting the IPO to value the business at between 3 billion pounds ($4.68 billion) and 4 billion pounds ($6.24 billion). European regulators ordered RBS to sell the business, which has a market share of about 30 percent, as payback for a taxpayer-funded bailout the bank received in the 2008 crisis. Other leading British motor insurers include Admiral , Aviva and RSA. Link this Share this Digg this Email Reprints

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