Life insurance profitability – how is it going?

Every quarter (since June 2008), APRA summarises various financial statistics from the life insurance industry in a quarterly report. Every quarter, I read it eagerly, to see if it answers the question that I am often asked, “how will we know if the life insurance cycle has turned?”.

The total industry appears to be slightly on an upswing, if you look at the annual average.

But that hides the worst individual line yet – retail disability income insurance (for the whole industry) returned a loss of $394m for the quarter, and a loss of $569m for the 2014 year. The second chart shows the whole of the disability income profit margin experience (retail and group). For the 2014 year, the loss for the industry as a whole has been 18% of net premiums.

Profitability for disability income in the retail market is still getting worse. And for the last six and a half years (all the statistics available) the average for this line of business has been a loss of 1% of premiums received.

The cycle will turn when the prices and terms and conditions in this part of the market are sustainable for the industry as a whole. We won’t know until we see the results in a few years when exactly that will be.

For the group insurance market as a whole, the results are starting to look a little better. But a profit of 1% of premium income (which is the return for 2014 for the industry as a whole) is a long way below an adequate return on the capital invested in this part of the industry.