LONDON (Reuters) - British motor insurers last year boosted their financial results by drawing on a large proportion of the reserves they had built up against future claims, consultancy Deloitte said on Tuesday.
Competitive pressures in the UK motor insurance market, alongside low returns from investing insurance premiums, have encouraged insurers to release reserves to improve their performance.
British motor insurers include FTSE 100 companies Admiral (L:ADML), Direct Line (L:DLGD) and RSA (L:RSA).
The reserves release improved the insurers' combined operating ratio -- a key measure of profitability in general insurance -- by 10 percentage points, Deloitte said.
"Some may question how this is sustainable," said James Rakow, partner at Deloitte.
The long-term average is to release sufficient reserves to improve the ratio by four percentage points, Rakow added.
The Prudential (LONDON:PRU) Regulation Authority warned UK motor and home insurers in November 2014 about the risks of drawing too heavily on their reserves.
Motor insurers' combined ratio improved to 101 percent last year from 102 percent in 2013, meaning the combined cost of claims and expenses was 101 pounds for every 100 pounds of net earned premium, Deloitte said.
But the firm said the ratio could worsen to 103 percent in 2015 and 105 percent in 2016.
The value of motor insurance premiums declined by 400 million pounds ($620 million) to 13 billion pounds last year,
according to Deloitte's analysis of 24 insurers.
($1 = 0.6447 pounds)