Industry triples underwriting profit, but investment losses bite

The industry more than tripled its underwriting profit to $6.1 billion for the 12-month period to September from a year earlier, successfully pushing through premium increases across key lines as floods and other extreme weather events drive up claims.

However the underwriting results were offset by large investment losses of $3 billion, causing industry net profit after-tax to decline 0.8% to $960 million, Australian Prudential Regulation Authority (APRA) data released today shows.

Net earned premium rose 10.3% to $43.3 billion while net incurred claims declined 3.4% to $26.9 billion, reflecting an increase in reinsurance recoveries for the industry.

APRA says the surge in underwriting earnings – compared with $1.9 billion a year earlier – was driven by the increase in net earned premium, reflecting the impacts of higher rate adjustments across most classes of business.

“Premium increases were more prominent in the householders, domestic motor, fire and industrial special risks, professional indemnity and reinsurance classes of business,” the regulator says.

Gross earned premium went up 11.3% to $61.9 billion and gross incurred claims also increased, but by a slower 8.1% to $46.3 billion.

APRA says the NSW/Queensland floods in February and March – the costliest insured flood catastrophe with losses of at least $5.57 billion – in particular led to the surge in gross incurred claims.

“The increase in gross incurred claims costs was reflected in short-tail property classes such as householders, domestic and commercial motor and reinsurance,” APRA says.

APRA says the $3-billion investment loss – compared with a $1.2 billion profit a year earlier – was due to the increase in bond yields over the past 12 months, resulting in unrealised losses on interest bearing investments.

However insurers’ investment portfolios performed better in the September quarter, rebounding with a profit of $100 million after losing $1.2 billion in the preceding three-month period.

APRA says despite the turnaround, investment income remained subdued relative to historic levels.

Underwriting profit fell 29.3% to $1.6 billion from the prior June quarter, the result of a 19.5% rise in net incurred claims costs to $7.1 billion.

Net profit for the quarter was $937 million, up from $300 million.