Insurance industry profits rise

Australian Prudential Regulation Authority (APRA) has released its Quarterly General Insurance Performance Statistics publication for the September quarter 2016.

The figures from the report show that although net earned premiums and gross incurred claims fell for the Australian insurance industry over the previous quarter, the industry saw higher profits

“Total industry net profit after tax in the year ended September 30, 2016, was $3.1 billion, up from $2.4 billion from the previous year,” the report states.

Net earned premium for the industry in the year ended 30 September 2016 was $30.6 billion, down 3.4 per cent from the previous year ($31.6 billion). Of this, direct insurers wrote $28.8 billion (94.2 per cent). The remaining $1.8 billion (5.8 per cent) was written by reinsurers.

The decrease in industry net earned premium was driven by an increase in the level of reinsurance purchased by insurers. Outwards reinsurance expense for the industry in the year to 30 September 2016 was $13.5 billion, an increase of 25.3 per cent on the previous year ($10.8 billion).

Gross incurred claims for the industry in the year ended 30 September 2016 was $31.1 billion, down 7.1 per cent from the previous year ($33.5 billion). The decrease in gross incurred claims was mainly due to decreases in gross incurred claims for the short-tail property classes of business, particularly for houseowners/householders, and fire and ISR (Chart 2). This was largely driven by lower gross incurred claims from catastrophes in the year ended 30 September 2016 compared to the year ended 30 September 2015.

Net incurred claims for the industry was $20.0 billion, down 9.9 per cent from the previous year ($22.2 billion). The decrease in industry net incurred claims was driven by the decrease in gross incurred claims. Reinsurance recoveries in the year ended 30 September 2016 were $8.4 billion, unchanged from the previous year. The net loss ratio for the industry in the year ended 30 September 2016 was 66 per cent, down from 70 per cent in the previous year.

Total industry underwriting expenses were $7.9 billion in the year ended 30 September 2016, down 4.6 per cent from the previous year ($8.3 billion). The industry underwriting result in the year ended 30 September 2016 was a profit of $2.6 billion, compared to a $1.1 billion profit for the previous year. The higher underwriting result was mainly related to the decrease in net incurred claims compared to the previous year. Investment income for the industry in the year ended 30 September 2016 was $2.9 billion, down $0.5 billion from the previous year ($3.4 billion) (Chart 5). This decrease was primarily related to trust distributions from other investment income. Other investment income for the year ended 30 September 2016 was $0.6 billion, down from $1.0 billion in the previous year.

The net loss ratio for the short-tail property classes of business in the year ended 30 September 2016 was 72 per cent, down from 75 per cent in the previous year (Chart 4). The net loss ratio for the long- tail classes of business in the year ended 30 September 2016 was 62 per cent, down from 76 per cent in the previous year. The industry underwriting expense ratio in the year ended 30 September 2016 was 26 per cent, unchanged from the previous year.

Industry net assets were $28.0 billion as at 30 September 2016, an increase of $0.7 billion (2.7 per cent) from the previous year ($27.3 billion). The prescribed capital amount coverage ratio for the industry was 1.73 times the prescribed capital amount as at 30 September 2016, up from 1.71 times as at 30 September 2015. The eligible capital base for the industry was $28.3 billion as at 30 September 2016, up 0.8 per cent from the previous year ($28.1 billion). The prescribed capital amount was $16.3 billion as at 30 September 2016, down 0.6 per cent from the previous year ($16.4 billion).