Australian property and casualty insurers are in line for “sound” underwriting profits this year after navigating a spike in claims last year, according to S&P Global Ratings.

“We expect the full benefit of incremental [premium] hardening for commercial lines to fully flow [this year], supplemented by further rate increases,” the ratings agency’s Australian sector review says.

Gains are likely despite highly competitive conditions locally and internationally.

“It is a watching brief in terms of how much rate increases can be put through, and it is very much an account-by-account proposition,” Primary Credit Analyst Craig Bennett told insuranceNEWS.com.au.

“I don’t think the momentum has died at all in terms of the willingness to try to increase rates. It is just balancing that with the competitive environment we are in.”

Operating results were slighter above S&P’s expectations last year, as earnings proved resilient in the hardening market despite large catastrophe claims.

Reinsurance programs have been effective, covering a higher percentage of claims in the past couple of years.

Mr Bennett says global overcapacity has put pressure on reinsurance rates, and large insurers are structuring more complex programs across a range of reinsurers.

“There is more ‘optionality’ embedded, which is really in favour of the insurers,” he said.

The report – called Pricing for Risk is Helping Australia’s Property and Casualty Insurers Navigate Choppy Waters – gives the sector a stable outlook.

S&P expects moderate premium rises in domestic motor and home and contents, with newer market entrants creating price tension and offering differentiated products.

Incumbents are responding to an “uncompromising” competitive environment through digital technology investments, operational efficiencies, particularly in claims management, and customer experience improvements.

The agency says insurers are not immune to “conduct risks”, with the Australian Securities and Investments Commission requiring refunds for add-on products sold through vehicle dealerships.

“At this stage, we believe such misconduct findings have not materially affected the insurers’ brands or reputations to the extent that their… competitive positions will be diminished.”

Some investment portfolios showed a slight increase in risk appetite last year, but S&P says capital adequacy remains an overall strength.