The Insurance Council of Australia (ICA) has denied claims NSW insurers are pocketing “super-profits” from compulsory third party (CTP) insurance premiums.

ICA GM Risk and Disaster Planning Karl Sullivan says that despite recent CTP premium increases in NSW, the “very long-tail nature” of accident claims means it is hard to argue that insurers are making excessive profits from CTP covers.

The NSW Government’s Standing Committee on Law and Justice is conducting its annual review of the state’s Motor Accidents Authority (MAA), which works with insurers to determine the price of CTP insurance.

Mr Sullivan’s comments follow attacks from the NSW Bar Association and Australian Lawyers Alliance that insurers have made an average profit margin of 24% over the past 10 years on NSW CTP cover, equating to around $500 of excess premium paid per policyholder over that period.

But Mr Sullivan says the value of accident claims is growing and it is becoming “increasingly difficult to predict the value of a person’s life”.

In a research note on the subject, Merrill Lynch insurance analyst Andrew Kearnan argues that the 8% profit margin for insurers targeted by the MAA is unrealistic.

“There isn’t a rational investor globally that would give an insurer capital to write CTP risk at a margin of 8% when the class requires 13% margins to generate a reasonable return on capital,” he says in a bulletin.

But Mr Kearnan concedes “there is little doubt historically (and probably even now) that insurers in both NSW and Queensland have made excessive profits on the class”.

He says the affordability of CTP insurance in NSW has “improved considerably” over the past 10 years, but “we have seen this reverse over recent times with substantial price increases in the class (50% over the past five years)”.

Mr Kearnan says income from NSW CTP premiums in the year to June 30 2011 accounted for around 8% of IAG’s gross written premium, 5% for Suncorp and 2% for QBE.

“The class has been a much higher contributor to profit due to better-than-expected claim performance for the prior years that resulted in large reserve releases and exceptional margins/return on equity,” Mr Kearnan says.

A spokesman for NSW Finance Minister Greg Pearce told the Sydney Morning Herald an internal review of the allegedly excessive CTP profits is under way.