Premium rates for Australian corporate buyers fell by an average of 10% in the fourth quarter of last year as new capital flowing into reinsurance markets fuelled competition, according to Marsh.

“Signs point to the market continuing on this trend over the first half of 2014,” the broking company says in its Pacific Insurance Market Report.

Better conditions for buyers also aligned with improved profitability for some insurance companies, amid fewer catastrophe losses last year and stronger equity markets.

“These two situations would logically appear to be in conflict,” Marsh says. “They may be mutually sustainable, but only if catastrophe costs remain relatively low and insurers maintain adequate pricing in the domestic insurance market.”

Marsh warns further consolidation triggered by IAG’s takeover of Wesfarmers’ underwriting operations could have a “profound effect” on market capacity and competition.

Casualty general liability rates fell up to 10% in the quarter and capacity remains plentiful, except for high-incident segments and clients with bushfire exposure.

Benign weather increased commercial motor insurance competition in the second half, with rates dropping 5-10% for some clients.

Property insurance average rate reductions topped 10% last year for low-risk buyers, with real estate and infrastructure premiums heading to levels last seen before September 2001.

But Marsh says capacity has reduced slightly for the power and mining industries and competition is less intense for micro SMEs and domestic insurance.

Rates for directors’ and officers’ liability and professional liability fell by up to 10% in the fourth quarter, as did financial institutions’ cover, while medical malpractice was stable.

The New Zealand market became highly competitive as local insurers fought to win back business lost to London and European markets after the Canterbury earthquakes.

“Uncertainty in the reinsurance market and the fear of more losses caused the local market, in some circumstances, to overreact on premiums and coverage,” Marsh says.

“Local insurers are now competing to repatriate the lost business, which is producing positive results for buyers at renewal.”