MLC Life Insurance chief executive, David Hackett has admitted to a Parliamentary Committee that the company’s income protection book had moved into loss recognition in 2015, representing a serious situation.
Answering questions before the Senate Economic Committee inquiry into the Life Insurance Industry, Hackett acknowledged that the company’s price increases had been driven by that fact.
His answer came as Queensland National Party Senator, Bert van Manen referenced information he had received from financial advisers about “very significant increases” in MLC’s premiums and the impact of Nippon Life having acquired 80 per cent of the MLC Life business.
Hackett said he wanted to put some context to the price increases, stating: “Our income protection book had moved into loss recognition, which is actually quite a serious situation for a life insurance company”.
“That essentially says that that line of business, that product, is expected to make losses for the rest of the life of the book. It is really important for life insurance companies to maintain profitable operations,” he said. “Business we write today requires that we are here in 30 or 40 years when a claim might come through on it. So we have to run very conservative capital positions and we have to maintain profitable operations.”
“Moving into loss recognition on a product is a very serious thing. We took advisers aside and said, 'I'm sorry, we have to increase our prices to bring that book back into mild profitability,” Hackett said. “In fact, I think I said, 'We don't have to make a lot of profit but we can't be in loss.'”
He said the advisers had accepted that.