The Australian Prudential Regulation Authority (APRA) has released its quarterly general insurance performance and institution level statistics for the March 2020 quarter, revealing a significant drop in profits from the impacts of climate change and COVID-19.
The statistics reveal the industry net profit after tax amounted to $1.5 billion, in comparison to last year’s $3.5 billion net profit after tax – a drop of 56.7%. The data also showed that return on net assets was 5.7% for the year to March 31, which was significantly lower than the previous year.
“This was due to lower underwriting results from the catastrophic bushfire and storm events in late December/early 2020, and large falls in investment income mainly from the impacts of COVID-19,” the regulator’s release stated.
“Another key driver of the decrease in underwriting results was an increase in the value of long tail claims reserves which resulted from sharp falls in bond yields. These were particularly pronounced in the March quarter 2020 due to the impact of COVID-19 on the investment markets.”
In addition, investment income fell during the year reflecting lower returns across equities, fixed interest returns and indirect investments, particularly in the March quarter due to the adverse impact of COVID-19 on the investment markets.
The underwriting result also experienced a significant decline from last year’s $2.8 billion to just $1.5 billion in the same quarter this year - a 47% drop. Investment income, in addition, fell by 36.5% from $3.1 billion to $2 billion.
However, despite the impact of the health crisis on industry profits, the insurance sector maintained its capital position, with the PCA coverage ratio at 1.67x being largely undisrupted from the December quarter.
APRA’s Quarterly General Insurance Performance Statistics publication provides industry aggregate summaries of financial performance, financial position, capital adequacy and key ratios. The publication also includes detailed statistics at a class-of-business level, a breakdown of operating income and expenses, and more granular solvency information.