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Life insurance industry hit hard by $6.6 billion investment losses

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The Australian Prudential Regulation Authority (APRA) has released its latest industry update, revealing a significant slump in net profit after tax for the life industry in Australia.

The industry suffered a 59.3% decrease in net profit after tax to $500 million for the year ending December, primarily due to investment losses of approximately $6.6 billion.

APRA notes that the losses were caused by both realised and unrealised losses on interest-bearing assets, impacting investment returns during the year. By comparison, the industry reported investment revenue of about $3.8 billion in the previous year.

Despite this setback, risk products, including individual disability income insurance (DII), performed strongly during the same period. APRA reports that net profit from risk products increased to $1.14 billion from $745.6 million in the previous year, with the improved profit largely driven by the $1.1 billion profit recorded by individual DII.

The regulator attributes this increase to movements in bond yields, repricing activities, and the release of Covid-19 reserves throughout the year.

Group lump sum and group DII business also reported profits of $33.7 million and $352 million, respectively, in contrast to a $165.9 million loss and $6.6 million profit the previous year. APRA explains that the improved results were due to lower net policy expenses for group lump sum business and reserve releases for group DII.

However, individual lump sum was the only risk product in the red, reporting a $329.2 million loss, primarily due to an increase in net policy expenses, according to APRA.

While the life industry's investment losses have stung the sector significantly, the strength of its risk products provides some optimism for the future. Industry players will need to remain vigilant and strategic in their investments to navigate the unpredictable financial landscape ahead.

Published:Friday, 10th Mar 2023
Source: Paige Estritori

Please Note: If this information affects you, seek advice from a licensed professional.

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