The financial services sector seems to be humming along nicely, with the Australian Prudential Regulation Authority’s annual report showing the economy has continued its strong run in 2003/04.

But while Chairman John Laker says low inflation and low unemployment accompanied economic growth, he has issued a warning to the general insurance industry not to go silly and chase premiums down.

“Although the general insurance industry has been able to restore profitability over more recent years, premium cycles will turn and insurers will need to resist pressure to relax their underwriting standards in pursuit of fleeting gains in market share.”

He says the general insurance industry benefitted from claims experience that was well within expectations. It also benefitted from a more disciplined approach to premium setting, in which short-sighted considerations of market share seem to have given way to longer-term, sustainable assessment of risk.

 “The rally in equity markets proved a fillip to the insurance and superannuation sectors and also helped ease earlier concerns about the damaging effect of sustained low investment returns.”