The Australian general insurance market has maintained solid profitability in FY24, achieving an estimated return on equity (ROE) of 15%, according to Finity’s annual Optima report.
This marks the second year in a row of double-digit ROE, driven by steady premium growth and stable loss ratios.
The outlook for FY25 suggests continued resilience, with projected ROE also expected to reach 15%, aligning with the upper end of the industry’s long-term target range of 10% to 15%.
Finity’s FY25 forecast expects overall premium growth to continue, albeit at a slower pace. While investment returns may decrease from FY24’s 6% peak to an estimated 5.4%, steady improvements in expense ratios are anticipated as premiums grow, which could help offset the investment decline.
“The industry has again delivered a strong result – despite ongoing cost pressures, improved investment returns were able to offset a higher combined ratio,” said Pravesh Ponna, Finity principal and lead author of the Optima report.
According to the report, gross earned premiums in FY24 grew by 11%, marking the third straight year of double-digit growth, driven by rate increases in response to inflation. However, this growth was slightly lower than FY23’s 12.5%.
The net loss ratio for FY24 rose by 3.5 points to 71.5%, as improvements in personal lines were offset by weaker performance in commercial lines, which did not experience the reserve releases seen in FY23 related to COVID-19 claims adjustments.
The industry also saw notable investment performance in FY24, with returns reaching 6% – the highest in more than ten years. These gains were instrumental in sustaining ROE at the upper end of the target range, following several years when industry ROE had averaged below target, around 7%.
For FY25, Finity anticipates that both underwriting profitability and ROE will remain stable.
Growth in gross earned premiums is forecasted to be slightly lower at around 9%, with short-tail insurance lines expected to outperform long-tail lines.
The net loss ratio is expected to stay close to FY24’s level, with an anticipated slight increase in underlying loss ratios balanced by reserve releases from previous years.
Although total expenses are likely to rise, premium growth should support a gradual improvement in the expense ratio.
Looking ahead, Finity’s report flags various risks that could impact the industry, including:
The report comes as the sector amends the General Insurance Code of Practice, with an independent panel recently issuing preliminary recommendations to improve customer protections and address sector challenges.
