Australia’s general insurers can expect margins to continue rising along with premium rates, albeit at a moderating pace, Morgan Stanley analysts say.

Margins improved to 17.6% last quarter, up from 15.8% in the corresponding period last year. In personal motor, combined operating ratios strengthened to 90% from 94%.

“Industry margins continue on a positive trajectory,” the analysts say in a new report.

“Margins remain a long way from their peak. This likely supports the margin trajectory through [the next two years].”

The short-tail commercial market continues to benefit from rate rises of about 5% in SME as it enjoys the strongest pricing tailwinds globally, the report says, citing data from Marsh.

Morgan Stanley says IAG remains its preferred domestic insurer, noting its exposure to the attractive Australian and New Zealand markets.