Australia: Modest returns spur Aussie owners to divest life
Source: Asia Insurance Review | Dec 2018
While the returns for the overall Australian life insurance industry (including wealth management) are considered reasonable, the return on equity performance and the prospects for pure life operations have been rather modest and not acceptable to many owners, especially banks, says S&P Global Ratings.
Consequently, five groups, three of which are major Australian banks, have divested or announced the sale of their life risk operations since 2016, notes the international rating agency in its report, ‘Australian life insurance: Tough times are set to continue’.
This has triggered a substantial shift in market dynamics with the five sales to date accounting for over a third of the sector’s market share as measured by inforce annual risk premiums. The trend may not yet be over with financial conglomerate AMP having identified its life insurance risk business as a possible candidate for divestment as part of a portfolio review.
The changes herald an increase in market concentration, with the top four players likely to account for over 70% of the market as measured by inforce annual premium – and all owners offshore. In a few years, the sector has gone from one dominated by bank owned insurers – over 40% of the market – to Westpac Life Insurance Services being the sole major bank-owned participant.
As many of the new owners are operating in low yield environments, they are likely to accept lower returns than prior owners and, as a consequence, upward premium pressure may reduce somewhat. A