The Australian life insurance industry faced a tough final six months last year, with falling premiums and rising claims.

According to the latest Australian Prudential Regulation Authority report, net premiums for the 12 months ending December 2010 were $39.5 billion compared to $40.1 billion in the previous 12-month period ending in June last year.

Net policy payments for the December 2010 year were $37.4 billion, compared to $36.9 billion in the year ending June 2010.

Reinsurance premiums for the life industry were $3.3 billion for the 12 months ending December 2010.

The life companies did a better job during the December year, with expenses down from $25.1 billion in the 2010 June year to $19.1 billion in the 12 months ending December 2010.

Despite cutting costs, the changes to premiums and claims did have an impact on the bottom line of the industry with after-tax profits down for the December year.

After-tax products in the December full year were $2.746 billion compared to $2.765 in the 12 months ending June 2010.

The financial health of the life industry improved in the December 2010 year with total assets reaching $234.8 billion.

This compared to $231.3 billion in the 12 months ending June 2010.

The December result gave life companies a total solvency of $224.4 billion for the year ending December and a solvency reserve cover of 1.81 times.