General insurers’ net profits started to rise again in the first half of this year after a slump in 2011, according to KPMG’s annual industry analysis.

Profit after tax rose in the year to March compared with the year to December. It further increased in the year to June.

This compares with last year when profit fell each quarter.

Even so, profit for the year to June 30 was down 18.5%, to $2.5 billion, compared with the previous year.

KPMG Financial Services Partner Ian Moyser says there have been fewer severe weather events this year but, because those that did occur were less severe, insurers bore a larger proportion of the costs.

Profits have also been hit by a 20% increase in net claims in 2011/12 to $17.6 billion, an increase in reinsurance costs after catastrophes and the effect of interest rate reductions, Mr Moyser says.

“This confluence of factors has limited some of the benefit of premium increases,” he told a media briefing last week.

Gross written premium rose 8.3% to $28.6 billion in 2011/12, according to KPMG’s General Insurance Industry Survey 2012.

“The [rate] increases reflect the need by insurers to appropriately price for the risk they are underwriting and to cover the increase in the cost of reinsurance,” Mr Moyser said.

Insurers posted an underwriting deficit of $438 million in 2011/12, down from a $1.2 billion underwriting surplus the previous year.

But Mr Moyser says insurance profit has not fallen as far as this because of insurers’ investment returns.

Although investment has been affected by slower growth in Europe, many Australian insurers mainly invest in fixed-interest securities, so the impact on returns has been muted, he says.

Mr Moyser says Australian insurers are well capitalised, with capital coverage rising in 2011/12 to 1.8 times the Australian Prudential Regulation Authority’s minimum requirement, meaning they are well prepared for capital regime changes next year.

Also see ANALYSIS