The profitability of Australia's general insurance sector should continue to improve after it ended a price war that had held back premium growth.
The sector saw its profit increase by 25% to A$4.85 billion (US$3.67 billion) in FY2017, with gross written premium up by 5% to A$43 billion. The sector's insurance margin was 16.1%, up from 13.6%, reported The Australian Financial Review citing KPMG's latest general insurance industry review to be released today.
At the same time, net earned premium increased by 6% with KPMG insurance partner Scott Guse saying this was indicative of a "market starting to harden".
He said that insurers had been "fighting each other to the death by trying to win market share by dropping prices to win market share and actually writing loss making business”. He said that insurers “have realised that is not the way to make a sustainable business of the future".
The most recent Australian Prudential Regulation Authority data for the general insurance industry showed premium growth across the aboard in all classes except for compulsory motor third party liability insurance. It is understood the prudential regulator wrote the boards of insurers that underwrite commercial property insurance in Australia at the end of last year over concerns the companies were not charging enough premium for this sort of product. "There was pressure of the market to raise prices and you've also got pressure from APRA to maintain your capital position at really strong levels," said Mr Guse.
He said insurers seemed to be moving on from years of "cannibalising their own industry", which should impress shareholders.
"The trend and momentum is there for insurers – they've started on their upswing. There is still a way to go until they get to the peaks of 2012-13 … they have that goal in their sights [and will be] more focused on growing their bottom line for shareholder returns and capital strength," he said.