Insurers' combined ratio heads over 100

General insurers lost money on their underwriting in Australia during the year to June as they absorbed the impact of severe weather events, and were able to report a small net profit only because of improved investment earnings.

According to KPMG's 2009 general insurance industry survey, released yesterday, the country's biggest general insurers (those with premium income of more than $200 million a year) reported an aggregate $463 million underwriting surplus on net earned premium of $30.1 billion.

But when the overseas income of QBE, IAG and others is taken out of the equation insurers report an underwriting deficit of $609 million in net earned premium of $18.9 billion.

That deficit equates to a combined ratio of 103.2 per cent. The head of KPMG's insurance sector Brian Greig said it was the first time the industry had reported a combined ratio (net claims plus underwriting expenses as a percentage of net earned premium) of more than 100 per cent since 2001.

Greig said that the cause of the losses early in the decade was loose underwriting standards but this time it was storms and bushfires.

The estimated cost to the industry of the Victorian bushfire is $1.1 billion. Storms in south-east Queensland in November 2008 have an estimated cost of $340 million and there are another six events that caused damage worth more than $20 million.

Among the insurers, Zurich had the biggest underwriting loss, with a combined ratio of 114 per cent. ACE Insurance's combined ratio was 111 per cent, CommInsure's 106 per cent, IAG's and Suncorp's 105 per cent and Wesfarmers Insurance Division's 103 per cent.

Insurers invest the bulk of their reserves in fixed interest securities and benefited from an increase in the capital value of those assets as interest rates fell from September though to April.

Total investment revenue for the sector was $3.8 billion, up from $2.7 billion the previous year.

Aggregate net profit was $3.19 billion, down 0.4 per cent on the previous year.

Greig said insurers had been able to raise premium prices on personal line products but faced increased competition in the home and motor markets that would make it hard to get further increases.