LCP urges general insurance actuaries to review modelling assumptions

As insurers prepare for 2026 amid softening market conditions and a shifting risk landscape, LCP is urging general insurance actuaries to review their modelling assumptions to ensure capital models remain robust—factoring in climate risks alongside expected loss ratios and economic uncertainty.

Insurance experts at LCP recommend that actuaries closely monitor signs of market softening. Following a period of inflation, pricing is beginning to level off, increasing competition and raising the potential for rate reductions.

“It is important to review loss ratio assumptions, test for pricing deterioration and adverse selection, and check how premium risk is calculated. Testing models under more aggressive pricing scenarios can help identify major risks and guide mitigation strategies,” said analysts at LCP.

The firm also recommends updating macroeconomic models to reflect ongoing inflation, political uncertainty, and broader economic shocks—rather than relying solely on historical trends. Scenario testing should include events such as trade restrictions or energy price fluctuations, which can have knock-on effects, particularly on motor and property claims costs where materials are often imported.

Increasingly dry and warm summers in the UK are adding to climate-related risks such as subsidence and wildfires. Actuaries are encouraged to update models with the latest exposure data, soil types, and claims from recent dry years, and to test against extreme scenarios such as multi-year droughts.

Wildfires are also becoming a growing threat in the UK. Models may need to include wildfire catastrophe allowances using geospatial data and scenario-based modelling of fire spread and damage—particularly for rural property portfolios.

LCP also stresses that actuaries must clearly record all expert judgements, explaining any decisions or changes. Assumptions should be regularly checked against the latest data to keep models accurate and reliable.

Daniel Sacks, Analyst in LCP’s Insurance practice, said, “As insurers plan for 2026, actuaries need to stay alert to changes in underwriting, the economy, and the environment. The assumptions that worked before may no longer be enough given today’s uncertainty and new risks. By regularly reviewing their models and working closely with other teams, actuaries can keep their work accurate and ready for whatever comes next.”

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