General insurers made an underwriting loss of $100 million in the March quarter after recording a $1.6 billion profit in the preceding period, hurt by a sharp rise in gross incurred claims, the Australian Prudential Regulation Authority (APRA) says in an industry update today.

Gross incurred claims went up 40.6% to $14.4 billion from $10.2 billion in the December quarter, the APRA statistics says.

APRA says the underwriting loss "was predominantly driven by an increase in gross incurred claims costs”. 

The industry’s net profit weakened too, falling 18% to $1.1 billion from $1.3 billion in the December quarter and gross earned premium fell 0.4% to $16.4 billion.

Investment income more than doubled to $2.1 billion from $1 billion.

For the year to March the industry performed better, with underwriting profit up 12.4% to $5.3 billion from the preceding 12-month period as gross earned premium rose 9.4% to $64.4 billion. Net profit nearly tripled to $3.7 billion from $1.3 billion.

Almost all classes of business recorded premiums increases, APRA said.

“These were substantial increases compared to the prior year and were driven by stronger underwriting results and a recovery in investment income,” APRA says of the rise in net profit.

Investment income recovered to $2 billion after experiencing a loss of $900 million in the previous year.

“This was driven by an increase in interest income and unrealised gains from interest-bearing investments,” APRA says.

Gross incurred claims remained relatively stable at $45 billion compared with $44.6 billion a year earlier.

APRA says long tail claims costs increased during the year but were largely offset by a fall in short tail property claims costs, which were elevated in the prior year due to the floods in NSW and Queensland.

Net incurred claims increased substantially in the year, rising 12% to $29.9 billion.

KPMG Insurance Partner Scott Guse says the March quarter numbers “are not surprising” as the first three months of any given year have “historically been weak” because of weather-related events that occur during that period.

“Although we have not had anything major we have a lot of smaller weather events,” Mr Guse said, adding it is “death by a thousand cuts, basically the smaller ones”.

“That being said reinsurance costs are going through the roof so the industry needs to keep putting up their prices to cover those costs.”