The general insurance market remains resilient despite the natural disasters over the past year and can expect moderate growth in the coming 12 months.

The annual KPMG General Insurance Industry Survey notes that competition in personal lines remains strong as new entrants work to establish themselves and larger players focus on driving operational efficiencies and growth.

KPMG Insurance Partner Ian Moyser says although personal lines and some commercial policies have been impacted by pressure on rates following disasters, the commercial market remains competitive and there is plenty of capital available.

“That said, the series of natural disasters that occurred in the period is expected to continue to place upward pressure on rates for certain classes of commercial business in the impacted regions.”

The report finds premium growth continued last financial year, with gross written premium increasing 6.7% to $25.6 billion and the underwriting surplus rising to $1.28 billion from $1.15 billion.

The sector’s total insurance profit increased to $3 billion from $2.9 billion, reflecting both the improved underwriting surplus and an increase in investment revenue. The overall insurance margin rose to 14.6% from 14.5%.

Mr Moyser says insurers’ performance was mixed, depending on their catastrophe exposure. Profitability this year could be affected by lower bond yields reducing investment returns but he believes investment performance is hard to predict given the uncertainty in global financial markets.

He says the industry continues to be well capitalised at 1.75 times APRA’s minimum capital requirement, even though that has fallen from 1.92% at June 30 last year.

“The fall in coverage was influenced by the impact of the catastrophic loss events but is expected to unwind over time.”

Mr Moyser says the size of catastrophes in Australia and New Zealand has meant that foreign reinsurers have borne a large proportion of the costs compared with previous years when local insurers incurred most of the costs from a high frequency of smaller events.

The report says that with more insurers providing flood cover, more companies will be exposed to natural catastrophes and “it is expected that reinsurers have a strong case to increase premiums”.

Also see ANALYSIS