Motor insurers are on a downward spiral, but a severe market crash is unlikely, research by Standard & Poor's (S&P) has revealed.

According to its 2005 Motor Review the deterioration in results is not expected to be as severe as in previous cycles.

This is because of the current low interest rate environment and more active cycle management on the part of insurers, said S&P credit analyst David Laxton.

The fleet motor sector has softened most. Premiums fell by 7% in 2004, while claim costs have remained fairly static.

Private car comprehensive deteriorated slightly over the past two years.

Premium earned per policy fell to £372 in 2004 from £378 in 2003, the first year since 1998 that premiums per policy did not increase.

The headline net combined ratio for UK motor insurers in 2004 was 101%, which compares with 101% in 2003 and 102% in 2002.

But when the underlying accident-year ratio is considered, which includes only results for the current year's operations and excludes adjustments to prior-year reserves, a downward trend becomes apparent, said Laxton.

The fall in premiums indicated the return of price cutting in this sector, he added.

But, claims costs per policy have fallen slightly - £287 in 2004, down from £289 in 2003 - reflecting increased security on modern cars and improving risk management by insurers.