The life industry recorded a “significant” net loss after-tax of $1.6 billion for the year to June, hammered by the “persistent poor performance” of individual disability income insurance (DII) and other risk products.

The industry had made a net profit of $400 million a year earlier, according to the Australian Prudential Regulation Authority’s (APRA) latest quarterly report.

Sharp market volatilities at the onset of the pandemic eruption in late March also took a toll as the industry booked a $900 million deficit in investment returns, compared with $15.4 billion in revenue a year earlier.

“The deterioration was caused by the persistent poor performance of risk business and large falls in investment revenue mainly from the market volatility impacts of COVID-19 in the March 2020 quarter,” APRA says.

But in the June quarter the industry recorded a net profit of $423 million, rebounding from the previous quarter’s $1 billion loss as the investment mood improved and individual lump sum raised its net profit to $239.1 million from $39.7 million in the March quarter.

Investment revenue in the June quarter totalled $4 billon, compared with a $10.4 billion deficit in the preceding three-month period.

Four risk products – individual DII, group DII, individual lump sum and group lump sum – made a combined $1.4 billion after-tax loss during the year.

Individual lump sum was the only risk product in the black, with a $422.5 million profit while individual DII remained a drag on the industry with the largest loss of $1.2 billion.

Group lump sum lost $352.9 million and group DII $249.1 million.

The Financial Services Council says further losses are likely in the next several quarters as the pandemic takes a toll on mental wellbeing.

“These income protection losses were driven by a surge in the number and duration of claims, especially for mental health conditions,” the council’s Senior Policy Manager for Life Insurance Nick Kirwan said.

“We expect mental health claims to increase in the months and years ahead from the effects of the COVID-19 pandemic on the economy, exacerbating people’s isolation and financial hardship.”