Financial results show that FY24 was a strong year for many of Australia’s insurers. However, data from Finity’s Optima 2024 report highlights the serious threat nat cats pose to insurer profitability in the year ahead. For some commercial lines in 2025 – whatever happens with nat cats – brokers can expect their customers to continue to have serious affordability and availability challenges.
“FY24 saw the industry maintain the heights of FY23,” said Finity’s Pravesh Ponna (pictured above). “The overall result was slightly better than last year but the drivers are different.”
The general insurance industry, according to the report, “maintained strong FY24 profitability.”
Sharply increasing premiums are a common factor that pushed up profits in both years.
Ponna, a principal at the firm and a lead author of the report, said strong investment returns are another part of the explanation for insurers’ strong profits in FY24.
“There was a return on investment of 6% and that's the strongest investment return achieved in over a decade,” he said.
However, personal, rather than commercial lines, brought in more profits. Ponna said personal lines offerings generally reached or went above insurers’ profit targets. In contrast, commercial lines tended to meet target returns.
“Private motor was a clear standout which returned a much better result than last year,” he said. “That was driven by strong premium increases, which more than offset claims inflationary pressures.”
“However, given the softening of the commercial lines market, we can see a number of classes’ underlying profitability deteriorating,” he warned. “Those classes are: property, liability, financial lines and commercial motor.”
Based on the data he’s seen for FY24, he expects personal and commercial lines to perform very differently in 2025.
Ponna said the profitability of classes, including property, in 2025 depends on how quickly premium rates deteriorate in the current softening market.
Weather events, including bushfires, floods, cyclones and hailstorms could be a critical factor.
In FY24, insurers enjoyed a relatively light year for losses impacts from both nat cats and other weather events.
“In fact, 2024 was the best year [for weather related losses] in five years,” said Ponna.
He said this conclusion is supported by insurers’ reported natural perils losses.
However, the coming years could be tough.
“For natural perils we're forecasting a move back towards a long-term that's higher than FY23 and FY24,” he said.
La Niña brings the potential for higher than average rainfall and warmer than average weather this summer which could be a driver of both floods and bushfires.
“That's a wash point in terms of the profitability for the industry next year,” said Ponna.
Apart from Australia’s local weather challenges, there’s also the North Atlantic hurricane season.
“We don't expect that to impact the industry in the short term,” said Ponna.
The Finity principal said that despite their magnitude, government insurance pools have helped cover much of the cost.
“But that event in itself was quite unique in some ways so that may well trigger some reviews by reinsurers around their cat models,” he said.
Ponna said for natural perils in Australia, Finity’s forecasts are anticipating a return to “historical levels” that take into account the additional volatility of climate change.
His firm’s media release for its state of the market report finished on a cautionary note.
“Despite the expectation of another strong year, Finity calls out the range of potential headwinds facing the industry, with natural perils volatility and the impacts of climate change, ongoing claims inflation, economic uncertainty, and a softening commercial lines market,” he said.
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