Insurance premiums are almost certain to continue their four-year slide into the near future, with analysts predicting more pain for insurers in the fiercely competitive domestic market.

Analysts predict commercial lines will continue their downward trajectory until at least 2008, with the possibility of further cuts in 2009 – barring a catastrophic event.

It’s good news for buyers of commercial insurance but the softening comes at the expense of insurers, which are dipping into reserves to maintain profit targets.

In the latest survey of the insurance sector, JP Morgan and Deloitte predict premiums will fall 5% in 2007 then bottom out in 2008 and rise in 2009.

However, JP Morgan analyst Shane Fitzgerald says the market shows no signs of slowing its highly competitive pricing strategies.

“It depends on how much premiums fall between now and 2008. If they stabilise a bit, premium falls may be pushed out another year. They are only going to stop falling when accident-year results are below target levels. Historically, falls have never stopped because of market discipline – it’s been because of a catastrophe.”

Analysts told Sunrise Exchange News last month that storm claims in NSW and Victoria are not likely to have an effect on premiums.

Mr Fitzgerald says claims costs from the two events – combined with Australian insurers’ limited exposure to recent flooding in the UK – will not make insurers reconsider their pricing.

Merrill Lynch analyst Siddharth Parameswaran says opinions are divided over when premiums will rebound, but further cuts in 2008 are likely. “This is not the last year of premium cuts. You will see rate reductions again next year.
 
“In a lot of classes the rate reductions haven’t hit a level where they are making losses. Until that starts to happen you won’t see premiums rise.”

Mr Fitzgerald predicts tough times for domestic insurers over the next two years, due to shrinking profit margins.

“In an environment of falling premium rates for the next 18 months to two years, there is no earnings growth.”