Competition, competition and more competition – that’s the theme dominating the 2005 General Insurance Industry Survey released yesterday.

Produced by JP Morgan and Deloitte, the survey confirms competition is fierce across commercial classes and in many cases it is leading to a reduction in premium rates.

And after several years of steep premium rises, the report’s compilers are “a little surprised by the extent of the fall” in the commercial classes, with an average drop of 9%.

In the corporate market, rates are down 12%, 10% in the middle market and 7% in the SME markets.

In every class of insurance in Australia, survey respondents listed rising competition levels as a major issue, and the report confirms any fears – profits must suffer.

“Views vary on whether the competition is rational or irrational,” the report says. “One thing that is clear is that the competition has begun to eliminate any excessive profits, and should it continue at the current pace would eliminate them altogether.”

The survey says the industry has reached its peak profitability level, which is what many analysts and industry leaders have been observing for some time. It says gross written premium revenue on an industry basis will only increase up to 1% next year.

Like last year, personal lines rates have held up. CTP rates declined 4% in NSW and 10% in Queensland as insurers passed on the benefits of tort reform. Rates across motor and householder portfolios increased, but only at levels below claims inflation.

But apart from increased competition and other industry pressures, the survey says that on any measure “the insurance industry is enjoying one of the most profitable periods in its history”. That view is supported by the combined ratio for this year of 88%.

Respondents predict the combined ratio will deteriorate by 3% to 91% in 2006. But analysts say this would still generate an attractive return on capital for the industry.

“However, with minimal revenue growth and a declining combined ratio, underwriting profits will struggle to match the levels achieved in 2005 in an absolute sense.”