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Australian General Insurance Industry's Remarkable Turnaround

Jon Davies
29-Aug-2023 13:15:00

In a year characterized by change, the general insurance industry in Australia has marked a significant upswing in its net profit, as recently outlined by the Australian Prudential Regulation Authority (APRA). The results from the past year offer a wealth of insights, many of which align with the trends and observations we've made here at InsuredHQ.

The data released by APRA highlights an impressive net profit growth for the industry, increasing fivefold to $4.6 billion, up from $900 million the previous year. We've also crunched the historical data over the last decade, and this remains teh most profitable year.

A principal driver behind this dramatic recovery was a strong resurgence in investment returns, accounting for about $3 billion instead of a deficit of $2.8 billion the year prior. Interestingly, a substantial portion of this turnaround can be attributed to unrealised gains from interest-earning investments.

Australian General Insurance Industry Profit. Copyright InsuredHQ

At InsuredHQ, our work with general insurance carriers, agents, and startups globally, but especially within the Australian market, has often emphasized the potential volatility of investments. This year's recovery underscores the importance of a diversified and strategic investment approach in ensuring business stability.

But it's not all rosy. Underwriting profit witnessed a decline of 6.3% to $5.7 billion, and net incurred claims escalated by a substantial 16.1% to $30.3 billion. This increase in claims was due to a drop in reinsurance revenue across numerous business lines. As our teams have observed, the backdrop for this trend can be largely linked to a domino effect triggered by global events and market movements.

However, there's a silver lining. Even with the dip in underwriting performance, results remained solid. Adapting to the evolving market conditions, insurers have raised their premiums to balance out the recent surge in claims costs. Moreover, gross incurred claims saw a decline of 2.3% to $44.1 billion, largely a result of decreased householders and fire/industrial special risk claims, following the high expenses accrued due to last year's south-east Queensland/NSW flood catastrophe.

Another trend to note is the industry's increased spending on reinsurance. General insurers paid around $19.5 billion in outward reinsurance expenses, a rise from $18.2 billion last year. This indicates a prudent strategy for insurers to manage potential large-scale future risks.

One key takeaway from APRA's report is the suspension of its September quarterly statistical publication. Changes to APRA's capital and reporting framework for insurance necessitate this move. Understanding and preparing for these shifts is essential as they will influence the industry's metrics and reporting in the forthcoming periods.

The data from APRA presents a tale of resilience and adaptability in the face of challenges. The insurance industry's ability to bounce back underscores the importance of robust strategies, which we advocate and support at InsuredHQ. 

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