High profitability levels in the insurance industry are attracting new competitors to the sector putting pressure on premium rates, according to a JPMorgan Deloitte survey.
"The current levels of profitability are not sustainable, and the high level of competition is proof of this," JPMorgan senior insurance analyst Shane Fitzgerald said.
The JPMorgan Deloitte 2006 General Industry Survey quoted statistics from the prudential regulator which pointed to strong profit growth.
Statistics from the Australian Prudential Regulation Authority showed the industry's return on equity at 23.1 per cent.
However, the survey showed that commercial premium rates fell by nine per cent although personal premium rates were stable.
"Strong profitability is attracting new competitors, particularly to the commercial insurance market. This is increasing the willingness of incumbent insurers to chase growth, which is one of the primary drivers of the current downturn in premium rates," the report said.
The report also highlighted the high number of mergers and acquisitions (M&A) taking place in the sector. According to the report, M&A activity was up 47 per cent from last year.
