General insurers face significant challenges in the months ahead, especially when it comes to inflation and unpredictable weather, despite returning better earnings in the year to March, according to the industry and analysts. 

Australian Prudential and Regulation Authority (APRA) data released last week shows the industry made an underwriting profit of $5.3 billion, up 12.4% from a year earlier while net profit after-tax nearly tripled to $3.7 billion from $1.3 billion. 

Responding to the APRA quarterly industry update, the Insurance Council of Australia (ICA) says the improvement in post-tax net profit “can largely be ascribed to a significant turnaround in investment returns and improvements in some commercial lines”. Investment income recovered to $2 billion after experiencing a loss of $900 million in the previous year. 

“A deeper dive into the APRA data shows that income and claims costs for home and motor insurance remained relatively consistent with the previous period,” an ICA spokesperson says. “Home insurance in particular remains under significant pressure.” 

The APRA data shows houseowner/householder underwriting losses worsened to $320 million from $276 million a year earlier. 

The line posted an underwriting combined ratio of 104%, meaning for every dollar collected in home premiums insurers’ costs were $1.04, the ICA says. 

“Insurer profits are impacted by factors outside of their control such as extreme weather events,” the spokesperson said. 

“Insurance plays a vital role in the economy as a financial shock absorber. We need a strong and profitable insurance sector to be able to help families, businesses and communities get back on their feet – it’s the reason insurance exists.” 

The results over the 12 months to March came off a low base since the 2019/20 Black Summer bushfires. 

“Because of the run of very large extreme weather events since the Black Summer bushfires… profits were historically very low in 2020, 2021 and 2022 and the results over the last 12 months should be seen in that context,” the ICA spokesperson said. 

Fitch Ratings APAC Insurance Director Kanishka de Silva says the underwriting performance of the houseowner/householder line continues to be under pressure from high natural hazard claims, inflationary pressure and rising reinsurance costs. 

“Natural hazard costs continue to be above insurer’s internal allowances,” he told insuranceNEWS.com.au. 

Looking ahead he says premium rate adequacy remains key for the performance of the industry especially given the inflationary pressure and rising reinsurance costs amid high extreme weather activity. 

“At the same time, insurers have been able to pass on higher rates without affecting volume. We expect overall performance to be supported by higher investment returns alongside higher interest rates.”