New-customer premium prices in personal lines insurance are declining this year, continuing a seven-year downward trend that throws projected earnings for Suncorp and IAG into doubt, according to Morgan Stanley.

The analyst’s New Premium Index shows motor insurance pricing down 0.5% compared to the previous quarter due to soft new car sales and motor clubs such as RACV taking market share.

Year on year it is up 3.8%. Inflationary costs for car parts and new technology are still contributing to claims severity, Morgan Stanley says.

Home insurance pricing was down 2% compared to last quarter, and down by 8% compared to last year.

However, Morgan Stanley warns these figures are likely overstated as insurers avoid overcollecting emergency services levies at the end of a two-year business cycle.

IAG is struggling with falling reserve releases, a rising catastrophe budget, lower yields and elevated compliance costs, Morgan Stanley says. It bolstered its catastrophe reinsurance program from $8 billion to $9 billion this year.

Suncorp needs to balance a growth campaign involving cutting premiums against the need to increase prices for a higher catastrophe budget and lower yields next year. Increasing compliance costs pose a threat to the momentum of Suncorp’s business improvement program.

CEO Michael Cameron recently stepped down after failing to deliver acceptable earnings growth.

Suncorp has consistently missed its natural hazard allowances, and cash earnings declined by 4% in the 2018 financial year. They are expected to have declined another 4% in financial year 2019.