The general insurance industry is making slow but steady progress, with profitability well away from the halcyon days of 2003-07, according to a report by actuarial consultants Finity Consulting.

Finity last week released its annual Pendulum report, which it compiles from a variety of sources including statistics from the Australian Prudential Regulation Authority (APRA).

It says the market has emerged from the global downturn in a healthy solvency position, with excess capacity driving strong competition and maintaining downward pressure on premium rates.

Despite returning $4.2 billion in the year to March 31 against $2.2 billion in the prior year, Finity says industry profitability “continues to be well off the highs of 2003-07, with no signs of a return to these levels in the short term”.

The report nevertheless charts some solid industry financials, with return on equity rates around 10% for 2008/09 and set to climb further this year.

There are signs investment returns are also returning to normal, at 5.4% in the March quarter compared to -1.1% during the June quarter of last year.

The combined ratio for listed insurers is also showing signs of returning to profitability after rising to 105% in the June quarter. The combined ratio returned to around 100% in the March quarter.

“The industry’s quality is shining through,” Finity Principal Andrew Cohen said at a briefing in Melbourne last week. “While some lines we red-flagged were affected by the downturn, it was nothing unexpected.”

Among the individual lines of business, personal lines are expected to feel the weight of the $1.85 billion storms in Perth and Melbourne but should remain profitable.

In commercial lines there is some pressure on directors’ and officers’ liability, but exposures are not as bad as initially expected. Professional indemnity loss ratios are up, while there is also some pressure on liability margins.

Among future issues likely to affect the general insurance industry, Finity nominates internet distribution, consolidation and flood cover as highlights.

It says direct players are likely to increase their personal lines market share as the top 10 insurers reduce to around six or seven major players by 2020.

Mr Cohen says a final solution to flood cover remains out of reach.

“It’s a bit hit and miss and there is some way to go,” he told insuranceNEWS.com.au. “We are yet to see a solution available to all consumers.”

Mr Cohen points to progress on the Insurance Council of Australia-led national flood information database as part of a possible solution.