Premium rate increases boosted profits for general insurers in the last financial year, but the pace of gains is already slowing after a relatively benign period for natural catastrophes.

The major reason, as always, is increasing market competition.

Insurers have already warned that the sort of rate increases experienced in the Australian market over the past year won’t continue at the same pace in various classes of business.

Premium gains have already incorporated higher reinsurance costs, and future gains may be more linked to inflation than has recently been the case, Commonwealth Bank senior analyst Ross Curran says. Affordability concerns may also cap premium repricing.

“Both IAG and Suncorp have said that premium rate increases will be high single-digit from here,” Mr Curran told insuranceNEWS.com.au. “The days of low double-digit rates increases, particularly in home, are probably behind us.”

Another analyst, who declined to be named, says Suncorp has been more bullish on the rates outlook than IAG, while both are seeking volume growth in competitive markets.

Suncorp, IAG and Wesfarmers Insurance all reported increased earnings in their Australian general insurance businesses and growth in gross written premium (GWP). QBE’s Australian and New Zealand GWP and underwriting result rose while insurance profit fell.

IAG, which earns about 80% of its GWP from Australia, reported that net profit more than tripled to $776 million for the year ended June 30. The improvement following lower natural peril costs and an 11.8% rise in GWP to $9.5 billion.

The company forecast GWP of 5-7% in the coming year.

Suncorp’s general insurance profit rose 79% to $883 million for the fiscal year, providing a bright spot for the company as total earnings fell 32% to $491 million after a loss on the sale of banking assets. GWP gained 8% to $8.59 billion and the combined ratio improved to 91.4% from 103%.

CFO John Nesbitt says general insurance has demonstrated price leadership in a very competitive market and the business continues to improve, while Commercial Insurance CEO Anthony Day says although some property rates weakened in May and June, most products have seen strong growth over the second half.

But Bank of America Merrill Lynch analyst Andrew Kearnan says slowing premiums reported by IAG and Suncorp point to increasing challenges.

“We see this as a recurring thematic, with challenger brands clearly having a material impact in the motor class and commercial premiums also under increasing pressure,” he says in a report.

Bank of America Merrill Lynch has an “underperform” recommendation for IAG, despite a strong reporting scorecard, on concerns that the share price reflects unsustainably high profitability levels.

“This is compounded by our strong view that the party is over,” Mr Kearnan says in a report obtained by insuranceNEWS.com.au.

IAG shares dropped 2.19% to close at $5.80 on the Australian Securities Exchange on Thursday after the results were released, and ended the week at $5.77. Suncorp rose 1.53% to $12.60 on August 21 and closed at $12.84 on Friday.

The market’s judgement was harsh on QBE, with the shares slumping 5.46% to $16.10 on Tuesday after first-half profit fell 37% to $US477 million ($530 million). The shares ended the week at $15.99.

Earnings fell after a drop in North American GWP and weaker European earnings.

Australian and New Zealand insurance profit fell 4% to $US359 million ($399 million) while the underwriting result rose 21% to $US210 million ($233 million). GWP gained 4% in local currency terms and in US dollars increased 1% to $US2.51 billion ($2.79 billion)

“Strong rate increases achieved in 2012 and early 2013 are expected to moderate and fall in line with inflation levels over the next 12 to 18 months,” QBE said in a statement.

The group’s Australian business is the first mover in a company-wide cost-cutting and efficiency program that involves shifting part of its operations to a global services centre in the Philippines.

“It is early days but we haven’t seen the benefits coming through as yet,” an analyst told insuranceNEWS.com.au.

Wesfarmers Insurance reported a major profit turnaround, thanks to a number of factors, including the performance of its supermarket insurance brand.

Earnings before interest and tax rose $205 million in the year to June 30, up from $5 million the previous year, which was affected by the Canterbury earthquakes.

Revenue grew 9% to $2.08 billion and underwriting GWP rose 9.3% to $1.64 billion.

The division’s Coles Insurance reported “substantial increases” in sales of motor and home products and more than 200,000 policies in force at June 30. It expects continued growth this year and will extend its intensive “little red quote” motor insurance campaign to home cover.

The performance of Australia’s major insurers demonstrates yet again the resilience built into the market. With smaller insurers – particularly niche operators – nipping at their heels, competition will remain the pivot around which profitability, premiums, growth, costs and a multitude of risk factors swing.