Soft commercial rates will continue until insurers' profits suffer, says Groupama MD

The commercial insurance market will not harden until 2009, and only after a set of "painful" financial results for the industry, Groupama's managing director has predicted.

François-Xavier Boisseau said the commercial market, which has been in the grip of fierce competitive pricing in some lines, would continue to soften in 2007 and would not turn until insurers had seen their profits hit.

"I expect the rating environment to begin to crystallise in companies' results. 2007 will see lower profits, in 2008 the pain will happen and in 2009 the cycle will turn," said Boisseau.

Rates in the commercial market have been under pressure for over a year, with anecdotal reports of insurers cutting rates by over 40% to win business and targets.

Boisseau told Insurance Times in October 2005 that the commercial market was in a "dangerous downward spiral" and was "heading for trouble".

And this week he added: "I am pessimistic about 2007. We saw a big drop in rates in the second half of 2006 across all lines of commercial. A lot of our growth was in the first half. 2007 will be tough."

The warning comes as Groupama reported a 20% increase in revenues for 2006. Premium income rose to €605m, compared to €504m in 2005. Excluding the company's acquisition of Clinicare, revenue grew by 8.6%.

Property and casualty premiums rose 5.3%, which the insurer said reflected "strong performances in homeowners' insurance and commercial lines".

The insurer's household book increased 20%, while the commercial lines book grew by 10%.

Boisseau said: "Our work on household EDI showed through in 2006, we are also working hard on distribution. We launched a product in September which is starting to show through. We will continue this push in 2007."

He said the performance in commercial lines, which saw growth in the company's schemes book, was "good" in the context of falling rates.

In contrast, Groupama's personal lines motor book lost ground slightly, losing "a couple of percentage points on top line", due to competitive market conditions. The number of motor insurance policies excluding fleet business grew 4.7%.

Boisseau said: "The private car market is at a turning point. We are starting to see no rate decreases, in fact rates increased on average 0.5% in each of the past two months. The market may put in 3%–4% increase this year which would be good."

The healthcare business was static on a like-for-like basis compared to 2005.