The general insurance industry faces a challenging time as it navigates the soft commercial pricing environment and householder cover affordability pressures, actuarial group Finity says.

The assessment is based on a review of Australian Prudential Regulation Authority data across last financial year, which shows overall gross written premium growth slowed to 2% from 6% a year earlier – taking it below Finity’s 5% forecast.

Finity says the moderation reflects “a softer market than anticipated, together with affordability pressures for consumers … beneath the headline profitability result, soft premium growth, heavier weather losses and less favourable reserve movements in key long-tail classes paint a more challenging picture for the industry.”

The industry’s net combined operating ratio for the year was 95%, better than Finity’s 96% forecast.

Full-year return on equity was 12%, which Finity says was broadly in line with its projection and within its target range. The group’s annual Optima report last year forecast ROE of 13%.

In personal lines, home and private motor diverged from the Optima forecasts.

Private motor GWP grew 6%, ahead of Optima’s 4% expectation. This probably reflects stronger than anticipated rate increases in response to persistent parts and labour inflation, Finity says.

The line’s 92% net combined operating ratio outperformed Finity’s estimate by 5 percentage points.

However, householders cover performed below expectations, with GWP growth of 7% lower than Finity’s 9% forecast and the net combined operating ratio of 103% exceeding a 96% projection.

“It’s been a challenging year … and it probably reflects there’s some competitive pressure in the market as well as affordability challenges for consumers,” Finity principal Pravesh Ponna said of the householders line.

“On the weather side, that was obviously a key driver of the result. It did follow a reprieve for the industry over the previous two years where the weather experience was better than average.

“However, if we exclude the weather or set that aside, even beyond that, we do see sustained building and labour cost inflation, and that’s really increasing the underlying loss ratio, irrespective of the weather. I think that’s going to be an ongoing challenge around the continued inflationary pressures and a potential impact on premium rates in the future.”

In commercial lines, premium rates continue to fall across liability and professional classes, and “that really puts pressure on the sustainability of the current rates,” Mr Ponna says.

Click here to read the Finity article. This year's full Optima report will be released next month.

---

From the latest Insurance News magazine: Why the "patchwork" approach to home insurance affordability just won't cut it

---