Consultancy KPMG says general insurance pricing conditions will harden further this year, predicting rates will increase by at least 10% as general insurers respond to last year’s flood catastrophes and other natural disasters.

KPMG made the projection in its annual state-of-the-market report which says the industry achieved an insurance profit of $4.9 billion last year, its best since 2018.

The 42% rise in profit from $3.48 billion in 2021 was driven by higher rates that underpinned a 10% rise in gross written premium (GWP) to $59.36 billion. Importantly for the industry, underwriting profit rose 72% to $6.1 billion last year.

“Growth was driven by average written premium increases, reflective of higher natural hazards, increased reinsurance costs, and inflationary pressures,” KPMG says.

The release of covid-related business interruption provisions also supported headline profit figures, reducing the impact on net claims costs.

However, expectation of increasing frequency and severity of natural hazards, along with ongoing supply chain issues and labour shortages, will continue to add to the pressure on pricing, KPMG says.

Last year’s floods and other catastrophes have led to reinsurance costs rising much faster and higher than GWP has risen over the same period.

At the same time the financial toll of catastrophes from last year, notably the NSW/Queensland floods in February/March – now the costliest insured disaster in Australia – has nearly tripled.

“As a result, direct insurers are feeling the cost of this impact on profitability,” the KPMG report says.

“Insurers have and will continue to pass these increased reinsurance costs on to customers which will contribute to the anticipated 10% increase in average premiums that we expect for 2023.”