The UK motor industry's period of stability and profitability will not continue without price rises, according Standard & Poor's (S&P) Ratings Services.
"The release of prior-year reserves has ensured another profitable year overall," said S&P credit analyst David Laxton.
But he warned: "This level of reserve releases cannot be sustained at the current level and the underlying trend of an increased accident-year combined ratio will inevitably show through, meaning the sector will fail to make an adequate return on capital."
S&P said the motor sector continues to be the largest business line in the UK insurance market.
In 2005, 50 insurance companies wrote £11,238m worth of business, with Lloyd's accounting for a further £895m.
The reported financial results showed a combined ratio of 102%, but the accident-year results represent a significant adverse development in profitability in the market as a whole.
The ratings agency said that in addition, continued relatively sharp falls in claims frequency have helped mask the effects of claims inflation.
It said this rate of reduction is likely to slow as security and safety features become the norm, and at this point the underlying claims inflation will need to be passed on to policyholders.
