The beleaguered UK motor insurance industry is poised for a return to underwriting profitability, according to a report by actuaries Towers Watson.

The forecast comes as the UK motor market reported a combined operating ratio of 120.4% for the 2010/11 accident year, slightly worse than the previous period’s 18.6% ratio.

The news was backed by the half-year results of Lloyd’s, which showed the motor sector has stabilised after heavy underwriting losses.

However, Towers Watson is confident that a turnaround for the sector is close.

“More insurers may well be achieving an underwriting profit on business written in 2011,” its motor insurance industry report says.

This is due to significant reserve strengthening exercises undertaken by insurers in the past few years.

The news will be welcome for IAG, which is exposed to the troubled UK motor insurance market through its Equity Red Star subsidiary.

The Towers Watson report shows that on an accident-year basis, the combined operating ratio for 2010/11 was 116% – a significant improvement on the 126.1% reported in 2009/10.

It says there is also “ground to make up” in pricing. The insurers were slow to raise their premiums when the UK claims situation deteriorated in 2006.