Insurance companies reaped record profits last year, as premium earnings for non-life activities climbed 16.4 per cent, while claims rose only 3 per cent, an annual survey of the sector has revealed.

Estimated operating profits for non-life insurance activities increased to €216.8 million from a €67.2 million deficit in the previous 12 months, according to the Irish Insurance Federation (IIF).

In addition to increased premiums, soaring returns from motor premium investments fuelled the first profits since 1998 and the highest since the IIF issued its first factfile in 1993.

But the federation, the lobby group for Irish insurers, cautioned against reading too much into the figures. Income from motor insurance was the principal driver of growth, offsetting continued heavy losses in employer and public liability insurance, which recorded a combined deficit of €115.7 million despite a 41.6 per cent increase in premium revenues.

Because of the poor performance of the liability sector, premiums are not likely to fall ahead of the promised introduction by the Government of wide-ranging reforms, most crucially the establishment of a personal injuries assessment board (PIAB), said federation chief executive Mr Michael Kemp.

Anecdotal evidence suggested the rate of increase in employer liability insurance had started to slow this year, but given the high level of losses, businesses awaiting a drop in premiums should not hold their breath, Mr Kemp said.

"The rate of increases in employers' liability has slackened. While there is little scope for premiums to actually fall, it seems that the market is stabilising."

It is also becoming apparent that the level of payouts awarded in liability cases has decreased, though not - as has been suggested - by as much as 25 per cent, said Mr Kemp.

If premium inflation has slowed, then it is wholly attributable to market factors, as none of those recommendations of the Government-appointed motor insurance advisory board that the federation has backed - including reform of the litigation system, setting up of the PIAB and the establishment of a Garda traffic corps - have been implemented, said Mr Kemp.

But the small business lobby seized on the data to demand a reduction in liability premiums. ISME said its members had shouldered an "unacceptable" 295 per cent jump in premiums over the past three years.

With insurers now reporting healthy profits and public liability cases having fallen 14 per cent in number last year, scope for a reduction in premiums now existed, according to the group.

A breakdown of the data shows IIF members wrote gross premiums of €3,955 million, up 22 per cent on 2001 figures. Net written premiums (total premiums with reinsurance costs deducted) were €3,161 million, a 10.1 per cent year-on-year rise, while net earned premiums increased 16.8 per cent to €2,988 million. Net incurred claims climbed 3 per cent to €2,477.5 million.

Driving the return to profits, investment income from motor activities was €164.7 million, up from €157 million in 2001. Motor insurance showed a net underwriting surplus of €18.5 million, compared to a €174 million deficit in the previous year.

As a result, motor insurance operating profits increased to €183.2 million from a €17.1 million loss in 2001. Fifty-five per cent of investments were in equities.

In total, the net underwriting performance of the non-life market in 2002 improved to a deficit of €45.4 million from a loss of €361.2 million in 2002. However, this was offset by investment earnings of €262.2 million, resulting in an estimated net operating profit of €216.8 million, up from a €67.2 million deficit in the previous year.

Liability insurance - including employers' and public liability - saw insurers writing premiums of €725.2 million in 2002, up 41.6 per cent on 2001.

Net earned premiums increased by 39.7 per cent to €552.3 million while net claims incurred were up 18.8 per cent, leading to an underwriting loss of €115.7 million, compared to a loss of €163 million in 2001.

In life assurance, IIF members reported aggregate income of €7,253 million, a 1.2 per cent improvement over 2001.