APRA's grim assessment of the life insurance industry
The Australian Prudential Regulation Authority (APRA) has painted a gloomy picture of the Australian life insurance in its 2020 Year in Review, pointing to the industry experienced “a concerning decline in return on net assets”.
The APRA document pointed to the industry’s return on net assets being down to negative 6% in the 12 months to 30 June, 2020, (from 3.5% in the preceding year).
It said this represented a significant deterioration in the long-term trend and was well below the 10-year average of 11%.
“The main driver of this accelerating trend, dating from 2016, has been significant declines in total profits across both investment-linked and non-investment linked products, and a prolonged period of low interest rates,” the APRA analysis said.
“Profitability of risk products has substantially declined in recent years. The net profit margin for 2019-20 was negative 10%, considerably below the longer-term average of around 3%.”
The APRA analysis confirmed that the result was driven largely by continued substantial losses in individual disability income insurance (IDII) and further declines in the profitability of individual lump sum and group business.
“Despite incremental premium rate increases in IDII in recent years, the combined effects of persistent adverse claims experience and the need to strengthen reserves contributed to the poor result,” it said.
“The profitability of group lump sum and group disability income insurance also declined during 2019-20. However, it should be noted that on an insurer-by-insurer level (as opposed to an industry aggregate level), profitability can be lumpy, with downward movements driven by the timing of insurers changing their assumptions about risk and the pricing of policies."
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
