Buckle up and sit tight. That may well be the mantra for insurers in Australia as they brace for what could be another challenging year ahead.

The latest company-level statistics compiled by the Australian Prudential Regulation Authority (APRA) point to the sort of year the industry has lately endured, and the situation is not likely to turn around significantly in the near future.

Industry profits were about half of the previous year’s, due to a spate of natural catastrophes earlier this year and a squeeze on margins amid a more competitive landscape.

The combined full-year profit was $2.31 billion, according to insuranceNEWS.com.au’s calculation using the APRA data.

Overall gross earned premium fell to $34.15 billion from $41.06 billion the previous year, while gross incurred claims grew to $26.63 billion from $26.2 billion.

The APRA figures cover company financial years ending on December 31, March 31, June 30 and September 30.

Analysts contacted by insuranceNEWS.com.au are not surprised at the dramatic fall in profit.

“It’s a combination of catastrophes and stiffer competition,” KPMG Insurance Partner Scott Guse said. “You can’t predict or control how many natural events there are going to be.”

Catastrophes cost the industry about $3.6 billion in 2013/14 and 2014/15, Mr Guse says.

If anything, the results underline the resilience of Australian insurers. They remain in the black despite the hits from heavy storms in NSW and southeast Queensland, hailstorms in Sydney and Brisbane, and Cyclone Marcia.

“When you look at the actual underwriting by the insurers – if you think of 2015 having been one of the more challenging years since 2011 – underwriting has been pretty good,” Moody’s Investors Service VP and Senior Analyst Frank Mirenzi said.

“Going back to December 2014 and the early part of [this year], we had a series of natural disasters.

“Those things in the early part of the year were severe and that’s what impacted insurers’ profit. You had more of the run-of-the-mill claims before that.”

AAI, which incorporates all Suncorp general insurance brands, posted a net profit of $597.55 million for the year to June 30, down from $921.39 million, according to the APRA data.

So there is still profit to be made, but the pie has grown smaller.

Mr Mirenzi estimates the industry’s combined operating ratio for the first half of this year was about 95%, and predicts it will be 93-95% for the full year provided no major natural catastrophes strike before December 31.

The sector’s combined operating ratio rarely breached 100%. The last time it did so was in 2011, the year of Cyclone Yasi and the Christchurch earthquakes.

Analysts expect nothing less than a stormy year ahead, but are confident the sector can ride it out, if history is any guide.

Advance warnings about the developing El Nino this summer mean insurers have plenty of time to make provisions for the weather phenomenon.

“They should be in a position to understand what the risks are from changing weather patterns,” Mr Mirenzi told insuranceNEWS.com.au. “It’s not new to insurers. It could be something that constrains their profitability in 2016, like we saw in 2015.”

Adequate reinsurance cover is a redeeming strength of Australian insurers, and nothing illustrates this better than the fact they are still delivering profits, albeit smaller ones, despite a string of natural catastrophes.

“What they have done well in the last few years is improve their reinsurance covers, so that lowers the ultimate claim cost to the insurers,” Mr Mirenzi said.

“If there are more natural catastrophes, you can expect profitability to stay lower than it was in 2014.

“It will still be challenging for profitability, but with reinsurance cover in place it will mitigate the ultimate claim cost.” 

The Insurance Council of Australia is confident the industry can ride out any impending turbulence, including that caused by El Nino. 

“Catastrophes, when they occur, will always have an impact on insurers,” GM Policy Risk & Disaster Karl Sullivan told insuranceNEWS.com.au.

“However, regulation regarding capital arrangements in Australia dictates insurers will always be more than prepared for these events from a financial perspective. 

“Regardless, insurers are well prepared and practised in managing large natural disasters and are ready for whatever eventuates.”