For years insurers have been talking about the work they are doing internally to slash costs and sell more business to current customers.

This year will test who has actually managed to make their strategies deliver.

The profit announcements of the past two weeks point to a slower rate of premium growth and stronger competition in the year ahead, and the mixed share market response to the results from Suncorp, IAG and QBE shows investor concern about the sector’s outlook.

QBE announced an annual $US254 million ($282.52 million) loss and saw its share price rise 5%, while IAG increased its half-year profit by 39% but saw its share price dip on what were considered to be relatively downbeat comments by MD Mike Wilkins.

Mr Wilkins told analysts IAG expects a strong full-year performance, but they noted a 2% fall in gross written premium (GWP) and guidance for GWP growth of 3-5%, compared with Suncorp’s guidance of 6-8% in personal lines and 3-4% in commercial.

“People are concerned [IAG] might be losing market share,” Commonwealth Bank analyst Ross Curran told insuranceNEWS.com.au. “But I am not reading it that way.”

With the takeover of Wesfarmers Insurance’s underwriting companies still before the Australian Competition and Consumer Commission – a decision is due later this month – Mr Curran says it makes sense for IAG not to give an impression of overwhelming market power, and it is being sensibly restrained.

In terms of profitability measures, IAG remains the strongest listed insurance stock, with an annualised return on equity (ROE) of 26.4%.

Suncorp recorded an ROE of 7.8%, and CEO Patrick Snowball says it remains on track to top 10% next financial year as its business simplification program continues to deliver results.

“It is an excellently run business that had a very, very good set of numbers,” Mr Curran said.

Mr Curran says goodwill charges inherited by the current management bring down Suncorp’s ROE, but Mr Snowball’s team has de-risked the business by selling non-core banking assets and is keeping control of costs while growing volume.

Credit Suisse insurance analyst Andrew Adams says Suncorp showed its general insurance business is in good shape by continuing to deliver incremental improvements “and demonstrate what a solid business it is”.

QBE’s share price bounce indicated it might be ready to leave the investment market’s sin bin, despite going into loss. But Mr Adams notes the shares were trading above $15 before QBE foreshadowed in December it would make a loss last year. They only recovered to $12.27 on Tuesday after the results announcement.

He told insuranceNEWS.com.au that this year “won’t be the year, but it will be the start” for QBE, while Mr Curran says there is time to wait and see how the insurer performs.

QBE Group CEO John Neal gave a relatively upbeat outlook at last week’s results briefing.

He says North America will be profitable this year and, with the operational transformation program complete in Australia, his team here is looking forward to growing the business.

Questions at the QBE briefing following the results announcement suggests analysts are wary. One asked whether its European and Argentinean businesses might be the next black hole for the group, and Mr Neal was asked for details of its North American stop-loss reinsurance, an excess-of-loss program.

In terms of underwriting profitability, QBE is targeting a combined operating ratio (COR) of 93% this year, compared with 97.8% last year, while IAG’s COR was 84.6% for the six months and Suncorp’s 90.8%.

IAG is looking at a year of opportunity with the Wesfarmers Insurance acquisition under its belt, while Mr Snowball hopes the “market disruption” created by an IAG behemoth will allow Suncorp to do some disrupting of its own, grabbing business from brokers who feel they should rebalance between insurers.

Credit Suisse’s Mr Adams says he does not expect huge market share losses by either IAG or Suncorp. 

However, a resurgent QBE might become more of a challenger, and insurers in the wider sector will be looking to take advantage of any distractions and weaknesses among competitors.

But if the insurers can deliver on simplification and operational transformation programs this year, they might surprise markets expecting a tougher year for profits in a low-growth environment for premiums.