Lower profits and thinner capital ratios in insurance 27 February 2015 5:27PM Shereel Patel The capital coverage ratio in the insurance industry is on the wane, dropping across the industry to 1.8 times the prescribed capital amount at 31 December 2014, down from 1.88 times the previous year.In its Quarterly General Insurance Performance Statistics, published yesterday, the Australian Prudential Regulation Authority said the prescribed capital amount coverage ratio for direct insurers dropped from 1.84 times to 1.8 times over the year to 31 December 2014.However, the coverage ratio for reinsurers dropped from 2.31 times the prescribed capital amount to 1.78 times over the same period. APRA said this was due to an increase in the outstanding claims provision insurance risk charge (up 38 per cent to A$600 million in 2014), and an increase in the insurance concentration risk charge (up 78 per cent to $300 million). Net earned premium for the total industry for the year to December 2014 was $31.7 billion, up 3.2 per cent from the previous year. Of this, direct insurers wrote $30.1 billion with the balance written by reinsurers.APRA said the increase in net earned premium was primarily driven by short-tail domestic motor vehicle and house owner/householder insurance, as well as inwards reinsurance.Gross incurred claims for the industry in the year ended December 2014 were up 3.6 per cent from the previous year, to $29.8 billion.The rise was mainly due to increased claims for the long tail classes of motor vehicle and employers' liability, as well as an increase in domestic motor vehicle claims.Total industry net profit in the year ended December 2014 was $4.1 billion, down from $4.7 billion in the previous year. This represented a return on net assets of 15 per cent, down from 16.0 per cent in the previous year.The APRA data covers 103 direct insurers and 12 reinsurers.