Mr. Bob Leung

Merrill Lynch Analyst Bob Leung foresees the strong equities market benefiting insurers.

The next 12 months should also see further consolidation, cost-cutting and reduction in duplications among the country's 150-plus insurers, which is currently toplined by IAG, QBE, Suncorp-Metway Ltd, Promina Group Ltd and the Australian arm of German giant Allianz AG collectively holding 79% of the Australian market.

The introduction of a capital-based risk regime after the HIH debacle has driven insurers to raise premiums in order to meet the new benchmarks, which has in turn pushed a return to underwriting profit in the past two years. Mr Leung, however, cautioned that with insurers being lured back into the market, this could end up pushing premiums down.

Bob Leung +612 9226 5772 bob leung@ml.com

However, Merrill Lynch analysts Bob Leung and Alistair Scarff said the deal only provides extra "seed capital" to facilitate the parent group's expansion plan.