The industry performed well for the second year running as householders and private motor lines lifted results, Finity says in an annual report.

Strong investment returns also contributed to the 2023-24 performance, according to the actuary’s Optima paper.

The industry achieved a return on equity of 15%, up one point on the previous year. Finity has an ROE target range of 10%-15% for the industry; before 2022-23, it was below 5% for three fiscal periods.

“FY24 saw the industry maintain the heights seen in FY23, despite ongoing cost pressures impacting the underwriting result,” Optima co-author Pravesh Ponna told insuranceNEWS.com.au.

“Strong investment returns have seen the industry return an even better result than last year.  However, it’s important to note that this has come after three consecutive years of poor profitability for the industry.”

The report says investment returns surged to a “very healthy” 6%, the best result in more than a decade and “a material contributor to industry profits”.

Gross earned premium rose 11% and, while slightly lower than the previous year’s 12.5%, this marks the third consecutive period of double-digit top-line growth.

Personal lines classes achieved “green” scores across all metrics including premium, claims, expenses, ROE and combined operating ratio.

“This was driven by both improved underwriting results, with claims and expenses both better, and investment returns,” the report says.

Commercial lines were weaker, with ROE deteriorating 8.5 percentage points despite a 10.3% rise in premium growth.

“The key driver was a material deterioration in the net loss ratio, largely driven by the non-recurrence of the tailwinds that boosted FY23 margins, namely Covid-19 business interruption reserve releases and yield curve movements.”

Mr Ponna says all eyes are on the softening market for commercial lines. 

“The longer-tail classes such as financial lines and liability are seeing rate softening, with the property classes following. Significant rate reductions could easily tip these classes to below-target profitability.”

In personal lines, Mr Ponna says private motor was a “clear standout” performer, while householders returned a profit for the first time in five years.

“It needed a number of factors to go insurers’ way … strong premium rate increases, moderating inflation, a stable reinsurance market, and relatively benign weather,” he said of the householders line.

“We think this class will hold onto profitability in FY25 … however, it relies on inflation staying under control and what the weather has in store. In addition, there are rising regulator and community expectations, particularly around affordability challenges, pricing governance and claims handling practices.”

Householders achieved gross earned premium growth of 15%, and Finity projects an 11.7% rise in 2024-25 to $14.2 billion.

The report says affordability challenges continue to escalate in the householders line after significant rate increases in the past few years amid claims inflation and other insurer cost pressures.

There is little relief in sight, with climate change increasing the risk of natural disasters, the report says.

“In response to more unaffordable insurance, customers are taking on larger excesses, underinsuring or not insuring at all, leaving an increasing number without adequate insurance cover.

“This protection gap has potentially serious flow-on implications for lenders, regulators and governments.”