Returns forecasted to continue trending downwards for the general insurance industry

The general insurance industry has reported an insurance margin of 9% (3 points lower than FY18) and an ROE of 13% (2 points lower than FY18), according to an annual actuarial firm report released this week.

Finity’s 2019 ‘Optima’ publication gives an overview of recent and prospective general insurance (GI) industry performance. Following three years of improving ROE, the industry is down from what may have been a high point in FY18 and further reductions in reported profitability are expected in FY20.

“Loss ratios were higher in the last year, as a result of a return to an average level of weather-related claims, a lower level of reserve releases and lower discount rates. However, discount rate pressures were offset – not quite completely, mind you – by higher investment returns,” said Andy Cohen, Finity Director and lead author of Optima.

“Prior year reserve releases in CTP were yet again over the $1 billion mark, but interestingly releases in other long tail classes have just about dried up.”

Looking to FY20, the insurance margin and ROE are both expected to continue trending downwards, a 7% margin and 10% ROE is Finity’s forecast.

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“We don’t expect prior year reserve releases to help as much as normal either, while there is more to come from CTP, these are expected to be at lower levels than we saw in FY19,” said Andy, adding that Finity’s report assumes emerging regulatory requirements will add 0.5 points to the expense ratio in FY20.

Optima canvases developments in the regulatory landscape over the last 12 months and looks at how general insurers might embrace artificial intelligence in their businesses for improved customer and operational outcomes.

Download a summary ‘OptimaLite’ here

A Finity roadshow has promoted the report in Sydney, Melbourne and Brisbane this week:

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