Insurers must stay on their toes to survive amid the “prolonged soft cycle” that has defined the industry in recent years, according to a Morgan Stanley report.

Commercial lines are showing encouraging signs of premium growth, but achieving net earned premium growth appears a tall order.

“Top-line growth globally remains under pressure, across most regions and lines of business, albeit the rate of deterioration seems to be stabilising,” the report says.

“While there are pockets showing signs of improvement, this is largely to address underperformance. Given the continuing abundance of capital and industry dynamics, the prolonged soft cycle likely remains.”

November’s 7.8-magnitude Kaikoura quake in New Zealand, with losses of up to $NZ5 billion ($4.78 billion), is a timely reminder that pricing discipline needs to remain a priority, the report says.

The report says insurers have been insulated against margin headwinds through supply chain efficiencies, expense savings and claims management.

But the industry may face diminishing returns because most of the benefits from such actions have been reinvested in strengthening programs to reduce earnings volatility.

“With these initiatives largely exhausted, more recently, navigating margin pressures has been harder.

“In commercial lines, as insurers seek to shed unprofitable business, they are generally replacing volume with equally challenging accounts while competitively pricing to retain good business. This has seen attritional loss creep.”

Insurtech developments are expected to make further inroads this year, mirroring the trend globally, Morgan Stanley says. Areas to monitor include rapid development of blockchain applications and peer-to-peer niche insurers such as Friendsurance Australia.