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Industry profits hit by sharp fall in investment income

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The combined net profit for insurers and reinsurers in the year to March 31 fell by a massive 41.7% to $2.2 billion, pulled down in part by a sharp decline in investment income, according to the latest figures from the Australian Prudential Regulation Authority (APRA).

Investment income fell 70.4% to $1.4 billion.

Gross incurred claims inched up to $31.3 billion in the year from $31.2 billion in the corresponding period of last year, and net earned premium fell 4.5% to $30.3 billion, APRA says in its quarterly update.

“The decrease in industry net earned premium was driven by an increase in the level of reinsurance purchased by insurers,” APRA says.

Gross written premium (GWP) increased to $43.8 billion from $41.5 billion, while the net loss ratio improved to 64% from 69%, with underwriting profit rising 84.7% to $2.9 billion.

The APRA statistics were based on data supplied by 109 insurers, comprising 99 direct insurers and 10 reinsurers.

The regulator says the decrease in investment income “was primarily related to unrealised gains/losses from change in net market value, which was a loss of $1.5 billion in the year ended March 31, down from a gain of $1.3 billion in the previous year”.

This “was mainly due to an increase in investment yields in the year ended March 31 which impacted the market value of investments”.

The 99 direct insurers recorded rises in GWP to $41.1 billion from $39.3 billion, and gross incurred claims of $30.1 billion, from $29 billion.

For household policies, GWP rose to $7.8 billion from $7.6 billion, gross incurred claims increased to $5.1 billion from $4.1 billion, the net loss ratio weakened to 66% from 60% and the combined operating ratio deteriorated to 94% from 88%.

In fire and industrial special risk, GWP was virtually stable at $3.74 billion from $3.71 billion, while gross incurred claims climbed higher to $3.6 billion from $2.5 billion. This raised the net loss ratio to 88% from 69%, while the combined operating ratio blew out to 131% from 110%.

Among domestic motor insurers, GWP grew to $8.4 billion from $8 billion, gross incurred claims were higher at $5.9 billion from $5.8 billion, the net loss ratio rose slightly to 75% from 74% and the combined operating ratio deteriorated to 97% from 96%.

Compulsory third party motor GWP increased to $3.7 billion from $3.6 billion, and gross incurred claims were reduced to $2.3 billion from $3.5 billion. The net loss ratio improved massively to 56% from 100%, and the combined operating ratio strengthened sharply to 68% from 113%.

The 10 licensed reinsurers’ GWP improved to $2.7 billion from $2.2 billion, gross incurred claims fell to $1.2 billion from $2.2 billion, the net loss ratio recovered to 62% from 77% and the combined operating ratio strengthened to 96% from 108%.