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Insurance industry shows deteriorating profits, but worth a second look..

Yesterday saw the results released from APRA's quarterly insurance statistics for December 2020. Headline results show headwinds for the insurance market, although if you take a second look the underlying performance is very strong.

IAG's combined result shows quite an alarming deterioration in profitability at 128% combined operating ratio in H1 2021. However when reversing the $865m business interruption losses and looking at their personal lines business (NRMA, RACV, SGIO and SGIC) there is strong underlying insurance margin at 15.9% H1 FY21 (as reported in IAG H1 FY21 results announcement.)

Strong GWP growth for IAG and QBE year on year and as reported this has been driven by premium increases in their commercial lines business. But these increases are yet to hit the profit result due to earnings delay.

Stand out performers come from the challengers Youi and A&G as they continue to grow at ~20%+ in the personal lines market with outstanding profitability. Debunking the usual market rhetoric that you can't grow market share profitably.

As insurers move into the second half, it will be interesting to see potential reinvestment of underlying profits to recoup revenue losses from 2020. Challengers will continue to look for double digit growth at the expense of the incumbents. It will be interesting to see how IAG, Suncorp, QBE and Allianz are able to to compete with the increasingly competitive market.

Stuart Brown – Partner The Bridge International


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