The share prices of both Austbrokers and Steadfast have been hit after the former warned of weaker earnings in the year ahead.

Austbrokers told the Australian Securities Exchange (ASX) on January 23 its profit growth will be 0-5% for this financial year because of soft rates.

This compares with guidance of 5-10% given previously and excludes the impact of the BrokerWeb acquisition last November.

Austbrokers’ shares fell to $8.38 in high volume on the announcement, down from the previous close of $10.10 and hitting levels last seen in January 2013.

The effect flowed onto Steadfast, whose shares also fell on January 23, to $1.45 from $1.565.

Steadfast made a statement on January 29 saying “in view of the number of queries we have received from investors, analysts and the media on the recent announcements in our sector” the group will update the market on its half-year results, to avoid “continued speculation”.

Steadfast says its half-year results, to be released on February 26, will show fees and commissions up 49% on the December 2013 half-year and net profit up 9%.

This morning Austbrokers’ shares had risen to $8.88 and Steadfast was trading at about $1.44.

Austbrokers reports its half-year result on February 25.

It told the ASX it expects net profit of $13.5-$14 million for the six months to December 31, up 5.5-9.5% on the corresponding period in 2013.

The company says rate reductions have led to a downturn in broker earnings.

CEO Mark Searles last week told insuranceNEWS.com.au that with rates in decline, brokers “are outselling more business” to maintain their income levels.

Premium income is flat but client and policy numbers are rising. “There is a lot of competition between insurers for market share,” he said.

Mr Searles says he has been surprised by the sharemarket’s reaction because Austbrokers warned last year that rates were softening. When the insurance cycle turns, the company will benefit from a larger client and policy base, he says.

The company told the ASX commercial lines rates had fallen by up to 30% in the first half and gross written premium (GWP) on a same-client/same-policy basis fell 10.8% over the period.

The largest rate reductions of 13% were in the first quarter – June to September – while in the December quarter GWP fell 10%.

“Our broking businesses have been able to partially ameliorate the market decline by increasing client numbers and policy count to achieve a flat year-on-year brokerage income position,” Austbrokers said.

The company traditionally earns more in the second half and told the ASX the January-June result is expected to be better than the December half.

Mr Searles says underwriting agencies and risk services continued to experience underlying growth in the first half.