Australia’s life industry suffered a decline in profitability last year, dragged down mainly by $US800 million ($1.18 billion) of reserve strengthening, according to Swiss Re’s latest Sigma report.

The reserve strengthening followed a reserve release of $US2.2 billion ($3.3 billion) in 2020 and was a key difference as to why the industry bucked the improved earnings trend seen in other Western economies, including the US, Canada and Japan, the report says.

In the US, profitability improvement was mainly driven by favourable markets and strong premium growth.

The report says Australian life premiums rose 0.8% in nominal terms to $21.36 billion last year, but shrank 2% on an inflation-adjusted basis.

Globally life premiums are expected to decline 0.2% in real terms this year, after last year’s robust recovery from pandemic-induced lows, the report says.

In nominal terms, premiums are projected to grow 4.8% to $US3.1 trillion ($4.6 trillion) this year.

“Inflationary pressures, economic uncertainty and financial markets condition are the primary drivers of subdued premium growth in 2022,” the report says.

“Saving premiums, which represent more than three-fourths of the total life premiums, will likely suffer due to volatility in the financial markets and as disposable incomes fall.”

Click here to download the report.