Commercial property insurers rate profitability as more important than growth because they believe premiums will stay depressed, according to the Australian Prudential Regulation Authority (APRA).

They are withdrawing from poorly performing risks and keeping profitable ones in their portfolios.

“While many insurers have a strategy for growth, greater importance appears to be placed on profitability over growth,” APRA says in its Insight publication. “This is because it is expected that premium rates will remain under pressure, and the competitive environment and excess capacity will continue in the foreseeable future.

“In developing their strategy, the majority of, if not all, insurers recognised and took into account the impact of the soft market on their business.”

Selected insurers and reinsurers surveyed by APRA say the commercial property business is under pressure, with many struggling to meet targeted returns.

Some are experiencing average annual premium rate reductions of up to 15%.

“On the whole, insurers are continuing to make profits in commercial insurance – with the exception of [last year] when there were a number of natural peril events – albeit at much lower levels than in previous periods,” the regulator says.

“Several respondents described the commercial property business as being under stress.”

APRA started a thematic review of selected insurers in September last year, to examine the oversight and control of pricing decisions.

It says the quality of performance reporting varies widely, with the better reports comprising performance commentary, data and graphs showing actual experience against targets and previous years.

“APRA’s thematic review found the oversight and control of pricing decisions for commercial property insurance have largely been operating effectively during this period of heightened competition.

“Mostly, responses showed strong governance, including appropriate oversight by the board and/or management and the existence of risk committees and technical pricing standards.”