Monday, January 15, 2007

Lower Insurance Premiums may give a buying opportunity

Insurance premiums in Australia are suspected to continue downwards during 2007. While this is good for consumers it is not so good for investors in this industry. The reasons premiums have fallen steadily since 2004 is because that is when offshore insurers entered the market. Promina Limited (ASX:PMN) chief Mike Wilkins predicts aggressive price cutting will cause the trend to continue well into 2007. However Insurance Australia Group Limited (ASX:IAG) said underwriters were resisting further cuts and the cycle was near its bottom. So basically there is no concesus on what is happening. At this point of time I would favour that they are going to continue to fall. But despite the fall in premiums the insurance industry is recording record profits, boosted by returns from the equity market.

This is an interesting bit of information for the industry. At the moment IAG and PMN are both sitting at an over valued price based on Price Earnings and the fact that premiums will continue to fall. But they are not extremely overpriced. These two shares are worth watching for future
falls on poor results. Eventually the sprialling lower premiums are going to start heading up and when this occurs the companies will prosper. It is just about getting a good company at a reasonable price and todays price is not reasonable.

Good Luck Investing.

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