Life Insurance Risk Profitability Update: September 2016

Life Insurance Risk Profitability Update

In August 2016, APRA released the June Quarterly Life Insurance Performance Statistics Publication. This quarterly publication provides a summary of financial performance and financial position for the life insurance industry, with insight into the performance of individual product groups. KPMG has analysed the data and prepared a summary highlighting some of the key trends observed for risk products.

Partner, Life Insurance Practice Lead

KPMG Australia

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The life insurance industry reported profits of $1,378m for risk products for FY16, up from $982m for FY15, the highest level since 2012.

Key highlights

  • Strong and rising profits for Lump Sum Risk (retail and group).
  • Losses continued for Disability Income, particularly retail.
  • Lower reserves for Group Life for the first time in 17 quarters.

Quarterly profit by product

The life insurance industry reported the following profits* for the June 2016 quarter:

  • Retail Lump Sum Risk: $333m profits
  • Retail Disability Income: $167m losses
  • Group Life: $164m profits
  • Group Disability Income: $31m losses.

*Net of reinsurance and net of tax

Trends: Lump sum products continue to be profitable

  • Retail Lump Sum Risk and Group Life profits continue to increase, underpinning the majority of life insurers' profits.
  • Losses continued for Disability Income products, particularly retail business.
  • Overall, risk product profits have recovered to beyond 2012 levels.

Group risk profits remain strong

  • Group risk profits continue to increase, underpinned by Group Life profits which reached a high of $164m in the June 2016 quarter.
  • Group Salary Continuance reported a loss of $31m, despite a year on year increase of 13 percent in net policy revenue.

Group Life profits may be partly driven by lower reserves

  • Group Life profit levels in FY16 are at 10 percent of net policy revenue, a historically high level.
  • This graph shows that the loss in FY14 was driven by a strengthening of Group Life reserves.
  • Group Life policy liabilities decreased in the June quarter for the first time since 2012 (17 quarters). This suggests the possibility that the higher profit level may be partly driven by reserve release.

Disability Income losses despite recent premium increases

  • Disability income products continue to show poor levels of profitability, despite recent premium increases across the industry in recent months.
  • With only half of the industry having implemented the new disability income table, it is possible that further reserve revisions and/or premium increases may be necessary to restore profitability.

Life Insurance Profitability & Capital Analysis

The Life Insurance Profitability & Capital Summary analyses FY15 comparative profitability and capital levels for the life insurance industry.

 
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