The five largest life insurers in Australia account for 80% of gross industry assets, according to the latest analysis from the Australian Prudential Regulation Authority (APRA).
In its report to the Productivity Commission, APRA says that the level of concentration in the industry has been relatively stable despite a gradual reduction in the number of insurers in the past 10 years.
The APRA analysis also points to lower profitability in the life sector, noting that, as measured by return on net assets it stood at 10% last financial year compared to the 10-year average of 13%.
It said this reflected a deterioration in insurance risk profitability attributable to poor results across most product categories, but is most significant for individual disability income insurance, where the industry has incurred significant losses in recent years.
“Whilst premium rates in disability income insurance have increased since the substantial losses reported during 2015, the effect has been outweighed by significant reserve strengthening as insurers adopt revised morbidity assumptions,” the APRA analysis said.
It said that industry profitability has also been impacted by the low interest rate environment.
The report also highlights the recent trend of divestments by Australian institutions of their life insurance businesses and an increase in foreign ownership.