The insurers may be heading for record profits this year, but the market is nervous about the future. Premium rates for personal insurances are said to be stable and the insurers are still increasing commercial rates. However, some motor rates are starting to fall and this is taken as a harbinger of increasing competition.
Given the enormous losses of 1990-1992, it is hard to have too much confidence in the companies' expressed commitment to strict underwriting.
Yet there are some grounds for hoping that the insurers will have to stick to their principles. Lower interest rates will reduce the scope for investment income, making it essential for them to make a profit on the actual business of insurance.
Against this background it is encouraging to see Commercial Union shedding motor exposures at this stage in the cycle. The main concern about CU is the unanimity of the view that it is the best company in the sector and a solid, long-term buy.
In the short term there seems little to inject fresh life into the sector. General Accident, another well-run company, may look attractive to income investors, since its shares are yielding 6.2 per cent gross. Takeovers are the best hope for good returns from the sector with Sun Alliance and Guardian Royal Exchange the likely targets.Reuse content