Competition in the Pacific region continued to drive down commercial premiums last year but insurers remained profitable amid fewer catastrophic losses, according to Marsh.

The Australian insurance market reported a combined profit of $4.52 billion for the year to June 30, up 8.3% on the previous year and a post-global financial crisis record, the global broker’s annual Pacific Insurance Market Report says.

Bumper returns have brought more capacity to the market, ensuring even greater competition in the year ahead.

Competition in the property market intensified last year, with rate reductions across all segments. Reductions were more pronounced for larger risks, as insurers competed for premium accounts to meet top-line growth targets.

The decade-long decline in liability premiums is “almost certain” to persist this year, Marsh says.

The greatest premium reductions were on larger accounts, with many long-established client-underwriter relationships changing. Several accounts were “repatriated from the UK” as Australian insurers offered broader policy coverage and better terms.

New market entrants in Australia and the UK will ensure competition remains strong for most industries. However, insurers are showing caution with retail and real estate risks, and capacity for bushfire exposures is limited.

The directors’ and officers’ market continues to improve. Class action lawsuits remain an issue, with their potential to affect insurers’ profitability. But despite losses and some economic uncertainty, insurers are still competing aggressively for new business.

In workers’ compensation, state-controlled schemes are reducing rates due to improved surpluses (the NSW surplus is now $2.5 billion). However, states with risks underwritten in the private market are seeing some premium increases due to poor loss experience.

A significant development last year was the lifting of the moratorium on private companies becoming self-insured under the Comcare scheme.

The reinsurance market continues to attract capital from non-traditional sources such as pension funds and high net worth trusts. Increased competition has meant lower reinsurance costs for primary insurers.

Merger and acquisition activity increased last year, and Marsh expects more this year.

New Zealand property rates fell significantly in the major client segment last year, but reductions for SME clients were not as pronounced.

Many insurers offered coverage enhancements and lower policy deductibles to gain a competitive advantage. Marsh expects further premium rate reductions this year.