Insurance profit for the year ended December 31, 2021 jumped 281% to A$3,486 million ($2.58 billion) for direct general insurers in Australia, compared to 2020, notes the global professional services company KPMG.
In a report titled “Building a Sustainable Future – General Insurance Industry Review 2022”, KPMG Australia states that the increase in insurance profits was largely due to an increase in GWP, with no corresponding corresponding increase in claims costs.
Investment income for 2021 was down 64% to A$510 million from A$1,435 million in 2020 due to weak investment returns resulting from continued historically low interest rates and depressed returns. Investment income for 2021 and 2020 was significantly lower than investment returns from 2017 to 2019.
As a result, 2021 insurance profits were still well below realized insurance profits from 2017 to 2019 despite the increase in GWP and improved claims costs.
GWP
GWP increased by 11% to A$53,824 million. This growth in GWP was largely rate driven as the industry continued to reprice to account for claim cost inflation. Growth was evident in all lines of business (except CTP, Travel and Employers’ Liability), but was most pronounced in the following areas where both an increase in rate and number of risks taken out:
These rate increases are the result of insurers continuing to price products to reflect the underlying risks and costs of a policy, which will lead to a more sustainable product.
The impact of COVID-19 continued to influence premium levels in some industry sectors.
Travel insurance
In particular, premiums written for travel insurance continued to be affected by limited domestic travel and almost no international travel until the fourth quarter of the year. Travel GWP for 2021 was A$234 million compared to pre-pandemic GWP of A$1,197 million in 2019. GWP in 4Q2021 increased by 133% compared to 3Q2021 as domestic and international borders of Australia have started to reopen. Consumer interest has yet to reach pre-pandemic levels, which is also consistent with GWP trends.
Main ratios
The loss ratio (cost of claims) improved in 2021 from 75% in 2020 to 66%. The significant decrease is explained by:
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– No significant strengthening of the provisions relating to business interruptions linked to COVID-19 which were lifted in 2020 while insurers awaited the final results of the “test cases” in progress; and
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– Impact of significant claims costs related to natural disasters in 2020, which did not recur in 2021.
Although insurers continued to be affected by natural perils in 2021, the overall net cost of claims for the industry was down and well below the year 2020 which was affected by the catastrophic bushfires of “l ‘black summer’ and violent storms (hail, rain and floods). ).
Insurers’ cost discipline tightened in 2021 with the expense rate falling from 25% to 24%. This improvement was seen despite continued spending on technology, regulation and compliance. Although overall expenses increased for the industry, the rate of premium growth exceeded the rate of expense growth, resulting in a reduction in the expense ratio.
Industry capital coverage as of December 31, 2021 for direct insurers increased slightly to 1.71 times the APRA prescribed capital amount. This compared to 1.68 times as of December 31, 2020.
