The general insurance industry remains in a strong financial position but softer commercial lines, inflation pressures and fewer reserve releases will test margins looking ahead, the annual Taylor Fry Radar report says.

After tax profit totalled $5.3 billion last financial year, down around $2 billion from record levels in the previous period when benign natural catastrophe experience and strong investment returns boosted results.

Taylor Fry principal Scott Duncan says profit may ease a little further in the current year, depending on natural catastrophes and investment markets.

“Inflation pressures are pushing up claims costs and we expect the level of reserve releases will slow,” he tells insuranceNEWS.com.au. “The other aspect is the soft commercial insurance market, and we expect that will flow through to the top line a little more in 2027 than it has in 2026.” 

Taylor Fry anticipates the commercial market won’t start turning until towards the end of 2028, with 2029 more likely, barring any major disasters or economic shocks altering the trajectory. 

In the past year, direct insurers contributed $4.7 billion in profit and reinsurers $600 million and the industry generated a 13% return on capital.

Domestic motor was a standout with a record $1.7 billion profit, as the June quarter generated results not seen since the start of covid, when lockdowns reduced driving activity. 

Mr Duncan says fuel sales volumes have decreased while prices have risen. 

“What that suggests is that there's been a bit of a change in driving activity as we've seen those fuel price increases, and there’s broader pressures on household budgets. At the same time, we've seen an acceleration in EV take up,” he said.

Householders posted an underwriting loss of $42 million after storms and hail hit Queensland and northern NSW in November and December, with the class recording a loss in six of the last seven years.

Taylor Fry is forecasting a householders combined operating ratio of 98% this fiscal year and mid-single-digit premium increases on average.

Mr Duncan says construction inflation will support premiums, while increases are likely to vary significantly depending on insurers’ assessments. 

“We've become much better at understanding the risk at an individual property level, and those properties that are more exposed to natural peril risks will receive far larger increases,” he said. 

The Radar report says artificial intelligence is also a key issue shaping the outlook, as the industry examines how to effectively manage the risks while capturing the opportunities.

Click here to read the full report.