Optima 2021

Optima 2021

By October 21, 2021News

Today Finity launched its annual state of the industry publication for Australian General Insurance - Optima 2021. Now in its fourteenth year, the report was launched at an online event attended by over 500 industry professionals.

This year the report highlighted the continued impact of the COVID-19 pandemic on the profitability of the industry with the expected bounce back in FY21 proving elusive.

According to lead author, Andy Cohen, “Due to the extended COVID-19 business disruption, the industry did not rebound as expected with the industry’s insurance margin in FY21 barely breaking even at 0.2%, down from 2.6% in FY20. Looking at ROE, the industry went from bad to worse in FY21 – ROE was only 2%, down from an already poor 3% in FY20, and was the lowest in two decades.”

A 2% deterioration in the industry’s net loss ratio was the key driver. In turn, this was due to significant strengthening of COVID-19 business interruption loss provisions (+5 points), offset to some extent by a return to average catastrophe claims (-2 points) and a favourable discount rate impact (-1 point).

Finity’s Managing Director and co-author Scott Collings said, "FY21 profitability was dominated by COVID-19 business interruption reserve strengthening. Assuming no repeat of this in FY22, margins are set to rebound by around 5 points”.

“The industry will continue to watch the progress of the second COVID BI test case through the appeal process with interest, and if ‘Test Case 2’ outcomes are upheld, then potentially an even stronger rebound might be expected,” he added.

Beyond COVID-19 business interruption, rate increases in most classes will be just enough to offset persistent claims inflation and, together with a slightly lower expense rate, this will provide further margin expansion of a little over 1%. Significant reserve releases look to be a thing of the past while on the investment side, lower returns are here to stay with record low interest rates.

Putting it all together, and on the basis of Australia experiencing an ‘average weather’ year, Finity forecasts for FY22 are for a 5.5 point rebound in profitability to an ITR margin of 5.7%, and an ROE of 7.2%.

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For more information contact:

Andy Cohen


Ph: 61 [0] 423 519 139