Fewer natural disasters boost insurance profits

Australia’s insurance industry had a better year in 2016 due to fewer bushfires, floods and other natural disasters.

The combined after-tax profit of 99 insurers and 10 reinsurers rose 20 per cent to $2.9 billion.

The insurance industry’s return on assets, in decline between 2012 and 2015, ticked up to 10.5 per cent from 8.7 per cent, according to figures from industry regulator the Australian Prudential Regulation Authority (APRA).

Investment income, where insurers usually make their profit, rose 21 per cent to $2.8 billion for the calendar year, better than in 2015 but not up to 2014 levels. Insurers’ interest income fell on 2015 but they made up for it with increased dividend income.

Insurers tend to hold a lot of cash on hand, ready to pay claims in case of a natural disaster, but this makes them vulnerable to low returns when interest rates are low.

Gross incurred claims fell 2.6 per cent to $31.1 billion and the combined net loss ratio (current and prior claims divided by net premiums) fell to 64 per cent from 67 per cent.

Reinsurers did not have such a good year, collectively reporting an $8 million loss. They incurred $1.96 billion in claims against $1.77 billion in net premium earned.

February 2017