Liability, cyber and non-proportional reinsurance classes are carrying some of the higher risk margin allowances across Australia’s general insurance market, according to new data from the Australian Prudential Regulation Authority (APRA).
APRA compares how general insurers are allowing for uncertainty in outstanding claim liabilities and premium liabilities. While the report does not prescribe margins, it gives insurers, actuaries and boards a benchmark for testing their own reserving assumptions against wider market practice.
Risk margins sit above the central estimate of insurance liabilities. They allow for the possibility that claims outcomes will be different from what an insurer expects. Under APRA’s framework, the central estimate and risk margin are intended to produce liability provisions that are sufficient to meet claims as they fall due 75% of the time.
That makes the data relevant beyond actuarial teams. Risk margins affect reported liabilities, capital adequacy and the way insurers assess uncertainty across their portfolios. They also give boards and management teams a benchmark when reviewing whether their own assumptions remain reasonable compared with the wider market.
The clearest pattern is that several long-tail and specialty classes carry higher margins. For direct business, directors and officers recorded a weighted average outstanding claim liability risk margin of 23.2%. Public and product liability recorded 16.9%, professional indemnity 15.7%, cyber 14.7% and employers liability 13.8%.
Premium liability margins were also higher in a number of these classes. Directors and officers recorded a weighted average premium liability risk margin of 37.9%, while professional indemnity stood at 19.6%, public and product liability at 18.5% and cyber at 18.4%.
The report does not assign specific causes to those figures. However, the pattern is useful for insurance professionals because these are classes where claims can take longer to develop, where litigation and loss trends can change, and where credible historical data may be harder to rely on.
Shorter-tail personal lines recorded lower weighted average outstanding claim liability margins. Domestic motor stood at 7.4%, while householders recorded 9.1%. For premium liabilities, domestic motor recorded 9.6% and householders 14.0%.
The data also shows that insurer size can affect the benchmark. For public and product liability, the largest five insurers recorded a weighted average outstanding claim liability risk margin of 13.4%, compared with 23.3% for the remaining insurers. In cyber, the largest five insurers recorded a premium liability margin of 18.2%, compared with 27.3% for the remaining insurers.
Those differences matter because industry averages cannot always be applied directly from one insurer to another. A large insurer with deeper claims data, a broader book and more mature pricing history may not face the same level of uncertainty as a smaller or more concentrated insurer.
Reinsurance showed another area of variation. For outstanding claim liabilities, non-proportional category C reinsurance recorded a weighted average risk margin of 26.7%. That compared with 15.1% for proportional category C reinsurance and 14.4% for direct category C business.
For premium liabilities, non-proportional category C reinsurance recorded a weighted average risk margin of 33.1%. APRA did not show weighted means for category A reinsurance risk margins because the results were distorted by large captive reinsurers that were not typical of reinsurers generally.
The report also highlights the role of diversification. Among insurers reporting a diversification benefit above zero, the weighted average benefit was 38.5%. Insurers with portfolio concentration above 60% recorded a weighted average benefit of 20.1%, compared with 39.9% for insurers with concentration at or below 60%.
The benefit was also higher for insurers writing more classes of business. Insurers writing more than 10 classes recorded a weighted average diversification benefit of 40.9%, compared with 24.6% for insurers writing five or fewer classes. Insurers with insurance liabilities of at least $250 million recorded a weighted average benefit of 39.0%, compared with 26.3% for insurers below that threshold.
