Australian insurers face weaker growth prospects this year, with commercial lines premiums forecast to be flat, according to the latest JP Morgan/Taylor Fry General Insurance Barometer.

“We would not be expecting profit margins on an underlying basis to rise,” JP Morgan Senior Insurance Analyst Siddharth Parameswaran said last week at the launch of the report.

Increased competition, claims pressures, an expected slowdown across all premium rates and macroeconomic factors will constrain growth, the report says.

“The industry is forecasting a slowing in rate increases in domestic lines and flat rates for commercial lines,” Mr Parameswaran said.

Last year domestic lines premium rates increased 8%, driven mostly by householders, while commercial lines fell 1%.

“There is basically a lot more competition in the [commercial] market,” Mr Parameswaran told insuranceNEWS.com.au. “Some players have a growth mandate, and that’s putting pressure on top-end markets such as big risks like mining and other big industries that have a lot of insurance needs.”

Some Lloyd’s capacity is also being deployed, which is keeping pressure on rates.

Taylor Fry Senior Actuary Kevin Gomes says the current “high-capacity environment” is “pushing down or putting pressure on rates on the commercial insurance side”.

Rate increases of 5% are forecast for domestic lines this year, although the report says “that number could prove to be a little optimistic”.

Householders insurance premium rate growth is expected to slow to 5% from 12% last year and 15% in 2012.

Last year’s combined operating ratio for straight domestic insurance lines held steady at 89%, while commercial classes improved to 90% from 98% in 2012. The report says both classes were supported by improved loss ratios and more favourable bond yields.

“Combined ratios were significantly better last year, primarily due to the impact of previous rate increases, no adverse hits from interest rate movements and greater reserve releases than 2012,” Mr Parameswaran said.

And Mr Gomes says overall combined ratio trends are expected to deteriorate slightly for the next couple of years, although they should remain reasonably profitable.

Also see ANALYSIS