Axa intends to steer clear of free insurance deals for new cars – dealing a blow to consumers.

The announcement followed details of heavy underwriting losses in the sector from Axa's merger partner Guardian.

Just released figures for 1998 show Guardian had a total operating ratio (expenses plus losses) of 142%, compared to the break-even point of 100%.

Axa bought Guardian in May this year.

Andy Tait, Axa's head of personal lines motor underwriting, said Guardian's motor insurance account had been driven largely by affinity deals with car makers.

A large number of Guardian's book, some 300,000 new car buyers, had free deals.

But Tait said Guardian's premiums to motor manufacturers were too low.

"Current rates for free insurance are double those of two years ago," he said.

He said rates had risen because of the young age profile of drivers and the market's selection procedures.

Also, fewer than 50% of motorists had renewed their policy with Guardian.

As a result he said: "Guardian has now virtually pulled out of the market. And for the time being Axa will not return.

"If an insurer gets its pricing wrong the result is a huge hole in their portfolio."

Tait stressed it was unlikely that Axa would return to the market until stricter underwriting practices were applied: "If rates and the selection process in the market improve there is a possibility that the market might recover," he said.

Other big players including CGU and Privilege, told Insurance Times they had no plans to pull out of partnerships with motor manufacturers.

Ian Frater, CGU spokesman, said: "The market has changed but we are happy to look at new business at the right price."