The profitability of disability insurance products continues to drag on the Australian life insurance industry, according to the latest data published by the Australian Prudential Regulation Authority (APRA).
The March quarter data reveals a 65.1 per cent decline in net profit after tax for the year ended 31 March, with the major contributor being individual disability income insurance, which was down $219 million over the 12-month period while group disability insurance was down by $50.3 million.
However, while the year on year data remained negative, APRA’s analysis pointed to an improvement in the quarter data, with net profit after tax at $523 million significantly up from the $529 million loss in the previous quarter.
It said the main drivers for this quarterly improvement were favourable movements in financial markets along with “the discrete write-off of goodwill that negatively affected the results in the preceding quarter.”.
The APRA analysis said risk products recorded a combined profit of $124 million for the quarter with Individual Lump Sum standing at $334 million; Group Lump Sum $59 million; Group Disability Income Insurance (DII) a $50 million loss; and Individual DII a $219 million loss.
It said profits for Individual Lump Sum improved by $237 million over the quarter, caused by reductions in operating expenses and the effective movement in net policy liabilities.
“On the other hand, Individual DII continued to report losses, driven by a significant reduction in discount rates and a recognition of persistent adverse claims experience,” the APRA analysis said.
“For the 12 months to March 2019, risk products reported an after-tax loss of $94 million, significantly down from a profit of $1.3 billion. All risk products deteriorated, particularly Individual Lump Sum and Individual DII. This deterioration is mainly driven by loss recognition caused by persistent adverse claims experience,” it said.