The insurance industry is now in a position where it can choose to continue the current positive cycle by maintaining underwriting discipline or “succumb to the historic temptations of growth above quality”, according to a new industry survey.

KPMG’s General Insurance Survey for this year says disciplined underwriting remains the key issue for the industry, even in the face of widespread evidence of rate cuts. But KPMG says the situation is still redeemable if insurers commit to underwriting discipline.

The report says “current market evidence” suggests the soft cycles of the future will be less profound, and last for shorter periods.

And it says the local insurers are reserving prudently. “Insurers… utilised record profits to strengthen reserving levels,” the report said. “All four publicly listed insurers now report reserving levels equal to or exceeding 90% probability of adequacy in aggregate.

“This level of reserving places the Australian market among the best reserved in the world.”

The report says insurers are realising that the negative underwriting performance of past decades simply aren’t sustainable. It says the industry ceased to rely on investment income to “correct” poor underwriting from 2002/03 on, and is now managing both underwriting and investment earnings on a positive return basis.

“Insurers have been quick to talk down any suggestions of these reductions signalling a return to previous cyclical underwriting,” the report said. “Nonetheless, the cycle development remains unclear.”