The general insurance industry made “significant improvement” in earnings for the year to December, as a sharp turnaround in underwriting results and lower claims losses combined to negate subdued investment returns, the Australian Prudential Regulation Authority (APRA) says today.

On a quarterly basis however, APRA says the industry fared worse with net profit dropping 87.5% to $100 million in the December quarter from the preceding three-month period as hail and storm events squeezed earnings.

For the year to December net profit after-tax totalled $1.7 billion, compared with just $60 million in 2020, APRA data shows.

The underwriting result returned to positive territory, to $4 billion from an $80 million loss, while investment income plunged 76.3% to $400 million due mainly to unrealised losses on interest-bearing investments.

“This improvement was driven by strong underwriting results caused by higher premiums and lower claims but investment income continues to be subdued,” APRA says, referring to how the industry performed last year.

Gross earned premium went up 9.4% to $57.5 billion and gross incurred claims decreased 18% to $38.9 billion.

APRA says insurers reported higher gross earned premium in most classes of business, including householders, domestic motor, fire and industrial special risks (ISR) and professional indemnity.

“This reflects the increase in premium rates across these classes,” the prudential regulator said.

The decline in gross incurred claims reflects lower incidence of natural catastrophe events in the householder class of business last year and in the reinsurance class of business.

For the ISR class, gross claims costs were comparatively lower due to the prior year one-off impact of large claims provisions raised by insurers for business interruption insurance claims.

However domestic motor claims costs increased during the period, reflecting higher levels of motor vehicle usage as covid restrictions eased.

In the December quarter, claims costs from natural catastrophes such as the hail and storm events in SA, parts of Victoria and Tasmania led to underwriting losses for householders and domestic motor classes.

The industry made an overall underwriting profit of $1 billion, down 37.5% from the September quarter.

Gross earned premium improved 7.3% to $15.6 billion but the gain was erased by a blowout in gross incurred claims, which rose 14.3% to $10.8 billion.