Australia life insurance industry turns profitable in 2021

Return on net assets increased by 3% for 2021, up from -6% in 2020.

Australia’s life insurance industry has started to recover as return on net assets increased by 3% in 2021, up from -6% in 2020, according to The Australian Prudential Regulation Authority (APRA).

In its year in review, APRA said that the life insurance industry has demonstrated resilience to the uncertainty posed by the pandemic, with financial results improving, driven by repricing initiatives and improved investment revenues.

“Although financial performance improved in the 12 months to June 2021, risk products remained unprofitable, owing mainly to the persistent adverse claims experience within Individual Disability Income Insurance and recent losses in the group insurance business. The risk of worse-than-expected claims experienced as a direct result of COVID-19 is likely to persist over the short-to-medium term,” APRA said.

The report added that the life insurance industry remains reasonably concentrated, with the top five life insurers accounting for 68% of total industry assets, up from 62% in 2020. This was owing to continued acquisition activity amongst the larger life insurers. Meanwhile, the trend towards increased foreign ownership of the industry also continued.

However, despite the return to profitability, industry returns remained significantly below the 10-year average of 9%. APRA identified the main driver of poor profitability in recent years has been material declines in total profits from both investment-linked and non-investment-linked products, with COVID-19 and its related economic impacts such as prolonged periods of low-interest rates, further exacerbating the decline.