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Rebound expected after COVID set back: Optima

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Australian insurers’ profitability is set to improve this financial year, while remaining below targeted levels, after the COVID-19 pandemic wiped out a rebound expected in the prior period, the annual Finity Optima report says.

Return on equity (ROE) fell to 2% in the past financial year, from an already poor 3%, reaching the lowest level in two decades while the insurance margin also contracted.

“Due to the extended COVID-19 business disruption, the industry did not rebound as expected with the industry’s insurance margin in [fiscal 2021] barely breaking even at 0.2%, down from 2.6%,” lead author Andy Cohen said.

The key driver was a 2% deterioration in the net loss ratio, mainly due to a strengthening of COVID-19 business interruption loss provisions. That was partly offset by a return to average catastrophe claims and a favourable discount rate impact.

Expense ratios increased 0.3% last year, with an advantage that large insurers have enjoyed over other insurers continuing to narrow.

Gross earned premium growth was just above 5%, similar to the previous period, but Finity says if figures are normalised for the loss of 80% of the industry’s travel premium, growth was a “surprisingly solid” 7.5%.

Finity says the current financial year should be better for the overall industry performance “in the absence of any further large COVID-19 surprises” and assuming weather-related claims remain at average levels.

The insurance margin is expected to rebound 5.5 points to 5.7% and the return on equity should improve to 7.2% in the current financial year, while remaining short of the 10-15% target range.

By class, standalone liability and travel are expected to remain loss-making, most other classes are in the below-target category with ROEs of up to 10%, while only the motor lines are seen within or above target, following up a good performance in the past pandemic-affected year.

“If you look through into the detail you really find it is the motor classes that are doing all the heavy lifting and delivering the goods,” report lead author Andy Cohen tells

The report is available here.