Motor insurance premiums are set to fall further as claims drop because of penalty points and reform of personal injuries legislation, Hibernian, the largest motor insurer, said yesterday.

Announcing an 18 per cent rise in operating profits in 2003 to €224 million, the company said the "claims environment" was likely to improve again this year and motor premiums would reflect this.

Mr Tony O'Riordan, chief financial officer, said there was no immediate plans for a reduction but the issue was under constant review.

Since November, Hibernian drivers without any penalty points have benefited from a 10 per cent reduction in the cost of their premiums.

The reduction in claims, more benign weather, less flooding and an improving risk profile helped the company to boost its general insurance operating profit by 83 per cent from €71.1 million to €130.5 million.

Lower claims cost was a key factor as gross premium income dropped slightly from €940 million to €936 million.

Mr O'Riordan said the 10 per cent premium cut only took effect from November 2003 so was not strongly reflected in the results. He estimated that it would cost Hibernian approximately €30 million over a full year.

The company said it had made an underwriting loss on its motor business for many years but, thanks to penalty points, a crackdown on fraud, lower court awards, its "Ignition" driver training scheme and the advent of the Personal Injuries Assessment Board, an underwriting profit was achieved in 2003.

Mr O'Riordan described this as a significant event for the company.

Mr Bryan Jenkins, Hibernian chief executive, said: "It is clear that Government-led initiatives, combined with our own actions, have led to a reduction in claims. If the momentum created by the insurance reform agenda, spearheaded by the Motor Insurance Advisory Board, is maintained, then responsible customers should see this reflected in the cost of their general insurance."

The company's life and pensions business, however, experienced a drop in operation profits from €119 million to €93.2 million.

Hibernian said this partially reflected a 29 per cent fall in new business in 2003.

The company said there two reasons for the fall-off in new business in this area.

The first factor was that the 2002 figures included €37 million of business from Special Savings Incentive Accounts.

The second was a lack of confidence among consumers about the stock market, which reduced the number of investment products sold.

Hibernian is part of Aviva plc, the seventh-largest insurance group in the world.

Aviva, which also owns Norwich Union, unveiled its operating profits of £1.91 billion sterling (€2.9 billion) yesterday, following a year in which it took action to cut costs and improve margins. The group said the 6 per cent growth in profits reflected strong performances in its long-term savings and general insurance businesses.

Aviva sounded a bullish note about prospects for 2004 and assured the market its overall financial position was strong.

During 2003, Aviva identified annual cost savings of around £250 million, including plans in December to cut 2,350 jobs and "export" work to India.

It said yesterday that one of its key objectives for last year had been to reduce costs and improve operational efficiency.

Aviva's cost-cutting drive continued earlier this month with the closure of its Hill House Hammond broker business, with the loss of around 1,200 jobs.

Yesterday's profit figure had been widely expected as Aviva surprised markets two weeks ago by issuing guidance significantly ahead of expectations.

Aviva said the improvement reflected the significant contribution made by its distribution partnerships across Europe, which helped Aviva claim the leading spot in the Spanish life market.

The company also said it had regained pole position in the UK market.