Underwriting discipline will be crucial to continued profitability among Australian insurers faced with lower investment earnings, according to KPMG.

The consulting company’s annual survey of the local general insurance industry reveals events such as the Victorian bushfires and Queensland floods have had a big effect on insurers in the year to June 30, with net claims rising 14% to $20.9 billion.

Reinsurers bore the brunt of the estimated $1.7 billion in severe weather losses, as reinsurance and other recoveries increased 32% to $4.9 billion.

The industry’s combined ratio reflected the higher expenses, deteriorating 5.2 percentage points to 98.5%.

Despite the effect of wild weather and plunging interest rates, overall net profit fell just 0.4% to $3.197 billion from $3.21 billion last year.

“The year to June 30 once again demonstrated the resilience of the general insurance industry in the face of challenging global and local conditions,” KPMG Australia Head of Insurance Brian Greig said.

Australian gross written premium of $22.19 billion showed 6.4% growth during the year, reflecting “steady, but patchy rises in premium rates” within the local market.

The report says underwriting discipline is crucial to future profitability, with investment income likely to remain subdued for the next few years.

“Lower interest rates and a general risk aversion to equities have locked in lower investment returns.”

Premium rates are forecast to rise further but may be tempered by strong competition in personal lines following the entry of Virgin Money and Australia Post into the motor market.

A change in weather patterns to dry El Nino conditions is forecast to heighten the risk of bushfire but should reduce costly storm and flood losses.