The home insurance market is expected to return to profitability next year – as long as there are no large weather-related catastrophes.

Finity Consulting MD Estelle Pearson says personal lines insurers have enjoyed a number of profitable years, but this year they became unprofitable due to weather-related claims.

“In recent years there were good premium increases and low significant claims which made the sector profitable,” she told insuranceNEWS.com.au. “But the increasing number of claims from weather-related events has pushed the sector into unprofitability.”

According to a presentation by Ms Pearson at the recent Institute of Actuaries of Australia conference, the premium index for home insurance has risen by 50 points in the past five years.

During the same period non-weather claims rose by 50 points, but when the weather is factored in, this increases by 100 points.

“The underlying profitability of this sector is now dependent on the weather,” Ms Pearson said.­

She predicts the sector will be profitable for the next two years, but warns that any major weather-related claims in that period will wipe out future profits.

Another sector destined to become profitable again is professional indemnity (PI), although directors’ & officers’ (D&O) insurance will continue to remain unprofitable.

Ms Pearson says the premium index for the two insurance classes since 1995 has steadily climbed to 100 points above the base – the point at which a product becomes unprofitable – but fell back in June to be 25 points.

The claim cost index has also seen PI and D&O rise to 25 points above the base.

While the sector remains profitable, increased pressure from more insurers operating in the space has put some pressure on premiums.

But D&O insurers are experiencing “dramatic” rises in claims as part of the fallout from the global financial crisis.

“This insurance is very much related to the economic cycle and we are seeing the claims become larger,” Ms Pearson said. “This will make the sector unprofitable during the next two years.”