The general insurance industry recorded an after-tax profit of $3.9 billion in the nine months to June 30, its strongest result in more than 10 years as the contribution from reinsurers rose.

But the industry faces a focus on integrity and climate challenges, according to the latest Taylor Fry Radar report.

Primary insurers’ profit of $3.27 billion was little changed from $3.4 billion a year earlier, while reinsurer earnings for the nine months jumped to $663 million from $214 million. 

Taylor Fry principal Scott Duncan says the industry has benefited from below-expectations catastrophe losses and strong investment income, but householders’ insurance remains a pocket of concern and future investment tailwinds are uncertain. 

“Investment markets have been quite strong, but there’s no guarantee that will continue over the next year or so,” he told insuranceNEWS.com.au.

The report draws on Australian Prudential Regulation Authority data and Taylor Fry analysis to assess financial performance and significant issues across major business lines.

Results have been reported against a backdrop of heightened focus on ethics, including from the parliamentary inquiry into insurers’ responses to the 2022 floods and affordability issues.

“Some of the key themes driving future industry performance will be transparency, accountability and the fair treatment of all customers,” Mr Duncan said.

Many recommendations from the floods inquiry are relevant outside home insurance and the industry is considering implications for other products and processes, he says. Impacts on costs remain unclear.

“It really does depend which of those recommendations are brought into play and the extent to which there is a change in premiums that covers any extra cost, if there is an additional cost increase,” Mr Duncan said.

The number of householder risks covered declined about 3% in the three quarters to June 30, marking the largest year-on-year drop in insured risks since at least 2013. The change follows a 19% year-on-year increase in average written premium, which has come amid a rise in cost-of-living and affordability concerns.

“The growing political focus means insurers must engage more actively with regulators,” Mr Duncan said. “By providing insights into the practicalities of climate risk pricing, insurers can help shape future regulations, balancing affordability with risk sensitivity.”

Risks associated with artificial intelligence also emerged this year.

“Insurers are very familiar with the issues associated with silent cyber a number of years ago and there’s now a real focus on looking at the exposure to AI in traditional policies,” Mr Duncan said.

“AI is certainly one of the things that is top of mind.”

Examples in professional indemnity could include a scenario in which a lawyer’s use of AI to prepare a briefing could result in errors and adverse client outcomes.

The Radar report shows industry performance has also benefited from reserve releases in long-tail lines. In lenders’ mortgage insurance, underwriters did not experience an expected pandemic-related increase in claims.

The use of nine-month figures in the report reflects changes in APRA data, with a new reporting framework starting from the December 2023 quarter.

Annualised return on capital, based on the nine months to June 30, was 14% for primary insurers, down 2 points on the previous corresponding period. For reinsurers it was 19%, up 10 points.

Click here to access the report.