Investments rather than premiums driving life insurer profits

Australia’s major life insurance companies are still struggling to generate what they see as adequate returns, with the latest Australian Prudential Regulation Authority (APRA) data confirming they are still making more from their investments than their premiums.

The APRA December quarter data saw the industry reporting a net profit of $1.2 billion and a net return on assets of 4.4% for the year to 31 December, which represented a significant improvement over the prior year, but the improvement was primarily driven by investment returns rather premiums.

However, it is worth noting that, for the December quarter, the industry’s profit of $212 million represented a decrease from the December quarter largely attributable to a fall in premium revenue for the quarter while investment revenue and total expenses remained broadly stable.

Looking at the annualised data, APRA said that, collectively, risk products returned an improved result in the year ended December 2021 predominantly driven by Individual Disability Income Insurance (Individual DII) which recorded a profit of $546.4m, “a substantial increase from the previous year”.

“The improved result is primarily due to reserve releases throughout the year in light of improved claims assumptions. Individual Lump Sum returned a profit of $375.3m (lower than the prior period due to an increase in reserving across the industry),” it said.

“Group products returned improved results in comparison to the prior year, however, they continued to report losses in Group Lump Sum ($165.2m loss) and Group DII ($3.6m loss). The improvement in Group DII can be attributed to reserve releases and a lower level of claims over the past 12 months.”