APRA confirms big five dominance of life

The five largest life insurers account for 80 per cent of gross industry assets, according to the latest analysis from the Australian Prudential Regulation Authority (APRA).

The regulator has used its submission to the Productivity Commission review of competition in the Australian financial system to draw a picture of an industry in which the five major insurers continue to dominate, notwithstanding recent divestments by the major banks.

It said the level of concentration noted in the industry had been relatively stable despite a gradual reduction in the number of insurers in the past 10 years.

“A recent trend in the LI industry has been divestments by Australian institutions of their life insurance businesses and an increase in foreign ownership,” it said. “There have also been two new entrants in the past two years, compared to just one in the previous decade.”

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The APRA analysis provided to the PC also pointed to the life insurance industry’s struggle to return to historical levels of profitability, noting that, as measured by return on net assets it stood at 10 per cent last financial year compared to the 10 year average of 13 per cent.

It said this reflected a deterioration in insurance risk profitability attributable to poor results across most product categories, but is most significant for individual disability income insurance, where the industry has incurred significant losses in recent years.

“Whilst premium rates in disability income insurance have increased since the substantial losses reported during 2015, the effect has been outweighed by significant reserve strengthening as insurers adopt revised morbidity assumptions,” the APRA analysis said.

It said that industry profitability had also been impacted by the low interest rate environment, with overall net profit margins for 2016/17 at five per cent, well below the eight-year average of 8.5 per cent.