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Markets drag on insurer profitability
Adverse market conditions resulted in a significant reduction in net profit after tax for the Australian life insurance industry during the March quarter, according to the latest data released by the Australian Prudential Regulation Authority (APRA).
But the good news for the insurers and superannuation funds was that the data pointed to a general improvement in the group insurance space.
By comparison, individual disability income insurance continued to be problematic, acting as a drag on insurers’ bottom lines.
APRA reported that total entity net profit after tax was $2.2 billion for the 12 months to March 2018 with risk products contributing $1.3 billion, of which Individual Lump Sum contributed $1.1 billion, Group Lump Sum $248 million, Group Disability Income Insurance $120 million and Individual Disability Income Insurance being negative $146 million.
The APRA analysis noted that there had been “a significant reduction in net profit after tax (from $698 million for the December 2017 quarter to $359 million for March 2018), largely reflective of adverse market performance (e.g. 5.0 per cent decrease in the ASX 200)”.
It said this market movement had negatively impacted investment revenue (due to changes in asset values, i.e. realised and unrealised gains/losses moved from $6.6 billion in the December 2017 quarter to - $2.6 billion for March 2018), which was partially offset by a decrease in the effective movement in net policy liabilities ($7.2 billion in the December 2017 quarter to -$944 million for March 2018).
“In addition, tax outlays reduced from $820 million in the December 2017 quarter to -$138 million in March 2018,” the APRA analysis said.
It said that for the 12 months to 31 March 2018, life insurers’ total revenue was $33.1 billion, which was 12.0 per cent lower than in the previous 12 months.
APRA said this outcome was driven by a reduction in investment revenue from $19.0 billion to $12.3 billion, and an increase in net policy revenue from $15.5 billion to $17.3 billion over the same period.
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