Life premiums in Oceania are estimated to have fallen 18% in 2017, making it the third year in a row that premiums have decreased, according to Swiss Re Institute's sigma report titled "World Insurance in 2017" that was released yesterday.
The fall was primarily due to a 19% decline in Australia, where low investment returns continue to render savings and annuity products unattractive.
In terms of profitability, Australian life insurers´ overall net profit after tax increased, supported by gains in investment income due to the strong performance of the equity markets. The profitability of risk products also improved, as the losses from individual disability income (DI) products decreased after aggressive repricing.
In Australia, the outlook for saving products remains challenging, although risk products are likely to continue to drive growth.
The Australian regulator is reviewing the recent heavy losses in disability products and how to consolidate this line of business. Consumer protection is also becoming more important. In Australia, the mandatory code of practice became effective mid-2017, and a voluntary code of practice for superannuation providers is planned in 2018. In September 2017, draft legislation in Australia was released that could have a dampening effect on sales.
In New Zealand, life premium growth slowed to 2.3% in 2017. Due to rising inflation, sales of traditional whole life and endowment products were slow. Swiss Re Institute believes that life premiums will return to moderate growth in 2018 and 2019. The premium outlook remains stable.
New Zealand is also expected to introduce a more transparent financial advice regime in late 2018.
Non-life premiums in Oceania increased by 2.6% in 2017 (2016: 1.6%). Premium growth in personal lines remains solid, and commercial insurance premiums resumed growth supported by more favourable pricing.
In Australia, premiums grew steadily by 2.5% and the sector also reported higher profits, which reflected higher premium rates, reserve releases and higher reinsurance protection for peril claims.
In New Zealand, non-life insurance premiums are estimated to have risen by 3.7% in 2017 (2016: ?2.4%) and underwriting margins also increased. Personal lines growth was supported by higher rates and increasing demand, led by motor, while commercial lines growth was mainly driven by higher rates.
According to Swiss Re Institute's analysis, solid premium growth should continue and the underlying margin outlook is also positive, driven by continuing rate increases in motor, home and commercial lines.
Meanwhile, for protection against natural catastrophes, governments differ in their approach. In December 2017, the Australian government concluded that for home, motor and strata insurance, mitigation activities to reduce the risk of damage from cyclones are the only way to reduce premiums on a sustainable basis. The government will not intervene directly in the insurance market, but aims to increase accountability and transparency within the industry, as well as raise consumer awareness about insurance. In New Zealand, on the other hand, the government raised the Earthquake Commission levy by 33% on 1 November 2017 to 0.2‰ to provide the first layer cover to victims after nat cat events.