General insurance actuaries urged to review modelling assumptions as risk landscape shifts and markets soften

As insurers prepare for 2026 and market conditions continue to soften, LCP is urging actuaries to review their assumptions to ensure their capital models remain robust.

Insurance experts at LCP also advise that climate risks, including increased dryness in the UK and the growing threat of wildfires, must now be factored into modelling assumptions alongside expected loss ratios and economic uncertainty. 

LCP recommends actuaries consider four key areas: 

Monitor for signs of market softening 

After a period of inflation, pricing is beginning to level off, leading to increased competition and 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. 

Update economic assumptions 

Macroeconomic models should be updated to reflect ongoing inflation, political uncertainty, and wider economic shocks rather than relying solely on historical trends. Scenario testing should include events such as trade restrictions or energy price changes, which can have knock-on effects, especially on claims costs in motor and property lines where materials are often imported. 

Include new climate trends 

The UK’s increasingly dry and warm summers are causing more climate-related risks such as subsidence and wildfires. Actuaries should update their models with the latest exposure data, soil types, and claims from recent dry years, and test them against extreme weather scenarios such as multi-year droughts. Wildfires, once a minor concern in the UK, are now a real and growing risk. Models may need to include wildfire catastrophe allowances using geospatial data and scenario-based modelling of fire spread and damage, especially for rural property portfolios. 

Strengthen governance 

Actuaries must clearly record all expert judgements, explaining any decisions or changes. They should also regularly check that assumptions match 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.”