General insurers are swimming against a strong tide that will see return on equities (ROEs) drift back towards the long-term average of 11 to 12 per cent from the decade-long average of 15 per cent, research reveals.
Data from the 2015 Pendulum Report: Fierce competition and slow premium growth set to put pressure on insurance margins, showed "negligible top-line growth for Australian general insurers over the past year".
The report, co-authored by Finity Consulting and Deutsche Bank, said the results heralded the "onset of a cyclical downturn".
"While ongoing reinsurance savings should soften the blow, negative real premium rates should see underlying ITR margins compress from here," the report said.
"Combined with a sustained low yield outlook, insurers are now swimming against a strong tide, which we believe will carry returns on equities back towards the long-term average of 11 to 12 per cent, below the 15 per cent over the past decade.
"Although we believe the listed general insurers are well positioned to navigate more troubling waters with cost savings and strong surplus capital positions support attractive dividend yields, we see minimal earnings growth ahead."
Finity Consulting principal, Andy Cohen, said the downturn represented an opportunity for the industry to focus on developing claims transformation programs, to enable more effective claim management while at the same time improving consumer experience.
"We see such programs as having the potential to improve the claims expense line by five to 15 per cent - an outcome for reported margins that will be hard to find elsewhere in today's environment," Cohen said.