Insurance industry profits may be on course for a sustained improvement after surging 25% to $4.85 billion last financial year, according to a KPMG report.

Gross written premium (GWP) increased 5% to $42.97 billion, while claims costs and operating expenses declined.

“Overall, this has been a very positive year for the general insurers, and we believe it signifies the start of a long-awaited upswing in the insurance cycle,” KPMG partner Scott Guse said.

Average quarterly growth in GWP was 1.2%, the highest level in recent years, and the gain was largely rate-driven, according to KPMG’s General Insurance Industry Review.

“In our view, this hardening is well overdue and has certainly been a key driver in delivering the positive industry results,” Mr Guse said.

“That being said, while the results for the year are positive, the underlying insurance margin of 16% is still below the results achieved by the industry in 2012, ’13 and ’14, so there is still a way to go.”

Mr Guse says the latest quarterly data from the Australian Prudential Regulation Authority shows premium momentum has continued this year, with the exception of compulsory third party (CTP).

“Putting CTP to the side, premium growth is happening across all lines of business, continuing that upward cycle swing that we are envisaging will happen,” he told insuranceNEWS.com.au.

The loss ratio improved to 63.5%, down 2.5 points due to higher reinsurance recoveries and reserve releases, with Cyclone Debbie the major catastrophe event during the year.

The expense ratio decreased to 24.8% from 26.2%. Distribution efficiencies were a key driver and premium gains also contributed.

But investment income allocated to insurance funds fell to $1.32 billion from $1.69 billion as the low interest rate environment continued.

The report also includes KPMG’s top 10 emerging trends for the Australian general insurance industry. Technological change and innovation dominate the list, with insurtech, digital, blockchain, artificial intelligence, cyber insurance and data analytics making up the top six.

Other trends listed are customer focus, risk mitigation, new accounting standard IFRS 17 and the increased focus on conduct and mis-selling.

See ANALYSIS.