The peak profitability game appeared to be up for Australian general insurers last year – before falling reinsurance rates sent it into extra time.

So says actuarial consultant Finity in its Pendulum report, which provides an annual review of the industry.

Evidence of a cyclical turn continues to build, but accelerating drops in reinsurance rates – singled out as the most significant development since last year’s report – have slammed on the brakes.

A benign spell for global catastrophes and growth in alternative capital have combined to push down reinsurance rates, and insurers will reap the rewards.

Finity previously predicted the insurance cycle would peak last year, with underlying profitability and premium rates deteriorating from then on.

But now it says insurers will enjoy peak margins through to the middle of next year.

However, it is a case of delaying the inevitable, with pricing pressures building.

Finity says underlying insurance trading result (ITR) margins will peak this year at 14.9%, before falling next year and reaching 13.2% by 2016.

“While lower [reinsurance] costs provide a considerable tailwind for ITR margins in 2014/15, emerging top-line pricing pressures … should also accelerate in short-tail property classes,” the report says.

June 30 renewals already indicate 10% reductions at the top end of commercial property lines. And competition continues to build in personal lines as challenger brands and major banks build market share.

“We estimate Auto & General, Hollard, Youi and Coles Insurance have collectively captured 8% of the personal lines market. Growing at well above industry growth rates, the key challenger brands have doubled their market share over the past three years.”

Major banks have also waded in – “a sensible move given returns on equity are now above major bank averages”.

Finity estimates the major banks have grown personal lines books at a 15% compound annual growth rate over the past three years – three times the rate achieved by IAG and Suncorp.

Home premium rates will slow to 3% this year and remain flat next year, the report says. Motor rates are expected to fall by 1.5% this year and next.

“This is based on our view that growing competitive pressure will ensure reinsurance cost savings are ultimately passed on to consumers.”

The report offers a detailed analysis of the commercial lines market, which has seen major changes in distribution, an influx of new capital and an increasing prevalence of underwriting agencies. It concludes the market will remain soft for now.

“Until poor profitability hits capital providers’ bottom lines in a significant way, we do not expect significant withdrawal of capacity or hardening of the market.”

Underwriting agencies are here to stay as a “significant ongoing part of the market”.

However, a rationalisation of agencies’ ownership will continue, in an effort to generate growth and unlock efficiencies.

The commercial lines market will increase in sophistication as pressures bite and focus intensifies on identifying profitable pockets of business.

The report’s over-riding message is that domestic insurers are well placed for another year.

They have been given a window of opportunity – an unexpected period of peak-margin extra time.

But it will be short-lived. They must score their goals before the final whistle blows.