Industry sinks to $428 million loss as floods take a toll

The general insurance industry slumped to a $428 million net loss in the first three months of the year, as the February/March floods drove up gross incurred claims, Australian Prudential Regulation Authority (APRA) statistics released today show.

The industry made about $100 million in net profit in the prior December quarter.

APRA says gross incurred claims “were significantly higher” in the March quarter, rising 47.6% to $15.4 billion from the October-December period and the gross loss ratio worsened sharply to 99% from 61%.

A 4.7% decline in gross earned premium to $14.9 billion also took a toll on March earnings.

Weaker investment results made another dent, with the industry booking a $1.6 billion investment loss during the quarter, worse than the $300 million deficit recorded in the December quarter.

APRA says the “large investment loss” was driven by a rise in bond yields during the quarter, resulting in unrealised losses on interest bearing investments.

The February/March event is now the country’s most costly flood catastrophe – eclipsing the 2011 Brisbane floods – with insured losses in excess of $3.35 billion, according to Insurance Council of Australia data.

The industry performed better on a yearly basis, with net profit up an annual 16.7% to $1.3 billion for the 12 months to March, the APRA data shows.

APRA says the results reflected stronger underwriting earnings, which more than doubled to $4.7 billion from $1.6 billion.

The regulator says insurers reported increases in gross earned premium in most classes of business, the result of moves by the industry to adjust rates upwards.

Gross earned premium increased 11% to $58.9 billion during the year. APRA says householders, domestic motor, fire and industrial special risks, public and product liability and professional indemnity lines saw “larger increases” in rates.

At the same time gross incurred claims also went up, by 7.3% to $44.6 billion, during the year mainly because of the February/March floods.

“As a result, large increases in gross incurred claims costs were recorded in the householders and reinsurance classes of business,” APRA says.

The regulator says domestic and commercial motor claims costs also increased, in part reflecting higher levels of motor vehicle usage in the current year when compared to the prior year.