Premium rates in the UK motor insurance market appear to have peaked, with most players having failed to reach a sustainable level of profitability, a new report from ratings agency Standard & Poor's has revealed.

"After losing £6.7bn over the past eight years and having failed to make a profit in 2002, time seems to have run out for the UK's motor insurers," said S&P credit analyst David Laxton in a market report published today.

"With competitive forces taking hold and starting to push premium rates down again, it now looks increasingly unlikely that the market will report a sustained underwriting profit in the near term."

Renewed competition in the market led to a slowdown in rate increases in 2002. With some evidence of a decline in rates during the first half of 2003, the majority of insurers are now not expected to reach a level of profitability sufficient to ensure future profits through a downturn in the cycle.

Gross premiums written in the motor market grew by only 8.4% to £11.6bn in 2002, S&P's report showed. This represented a steady decline in growth, compared with increases of 11.1% in 2001 and 20.1% in 2000.

In line with the slowdown in premium growth, the improvement in the market's combined ratio was also unremarkable, falling just 1.9 percentage points in 2002 to 102.2%, again failing to make the 100% break-even mark.

Although this result was depressed by the cost of strengthening prior-year provisions by some companies, it still contrasts sharply with an 8.9 percentage point improvement in the overall result in 2001 over 2000.

Nevertheless, despite concerns that motor rates have peaked, the profitability of the market is not expected to nosedive as it did in 1995, when the market cycle last turned.

Significant consolidation in the sector since 1995 and reduced investment income have increased the scope for the major players to maintain underwriting discipline, even in a negative operating environment.

Consequently, as the cycle turned, it was management control that was likely to become the key competency for success, S&P said.