Insurers' Assets Rise Amid Continuing Turbulence: Lifebroker

February 7, 2012 - In its annual report for the year ended 30 June, 2011, the Australian Prudential Regulation Authority (APRA) has reported that Australian life insurance companies have strengthened their capital positions and that they remained profitable despite a year-over-year decrease in net premiums.

Total assets held by insurers increased to approximately $235 billion from the $234 billion in assets held at the end of the previous financial year. As of the most recent annual reporting period, 89.3% of those assets were held as investments, 7.5% were cash holdings and 3.2% were held in other forms.

Of those assets, $161.5 million were held by investment-linked insurance funds and $70 million were held by non-investment-linked funds.

Liabilities also increased during the period, from $217.2 million to $217.3 million, with 94.2% of those liabilities consisting of gross policy liabilities.

At the same time, net premiums decreased from $39,578 million to $38,422 million, with investment-linked and non-investment linked funds accounting for approximately $24,149 million and $15,433 million respectively.

Net policy payments also fell, from $37,465 million to $34,772 million, along with revenue, which dropped slightly from $23,467 million to $22,514 million.

Viewed on an industry-wide basis, expenses followed a similar pattern, falling from $19,199 million in 2010 to $18,353 million in 2011. Operating expenses and net policy expenses accounted for almost all of total expenses, amounting to $6,379 million and $5,761 million respectively.

The industry's return on net assets was 15.1% when taken as a whole. The net return for investment-linked funds was 35.4%. For non-investment-linked funds, the return was 14.8%.

The industry as a whole showed a net profit after tax of $2,614 million, a slight decrease from the previous year's profit of $2,746 million. Commissions, valued at the end of September 2011, totalled $2.9 billion, with new business accounting for $1.2 billion and the remainder coming from commissions on ongoing policies.

Australian life insurers were uniformly profitable during this period. AMP led the field with a profit of $593 million on $5,337 million total revenue. It was followed by Challenger, with a profit of $360 million on revenues of $927 million, and CommInsure, with a profit of $295 million on total revenues of $2,561 million.

The APRA report noted that domestic and international financial turmoil had adversely affected the Australian life insurance industry, but that improvement in equity markets had led to "a further strengthening in profitability and capital" that had allowed the industry "to stabilise around pre-crisis levels". Those improvements had, in turn, helped the industry to weather "renewed turbulence" that continued to affect the equity markets as the crisis abated.