APRA confirms rush to annuities

By Ross Kelly

Industry speculation that changes to the asset test exemption would trigger a rush by investors into annuities has been supported by new statistics compiled by the Australian Prudential RegulationAuthority (APRA).

Figures released recently by the prudential regulator show that total premiums for the September quarter of 2004 jumped to $10.9 billion — a 28 per cent increase against the corresponding quarter in 2003.

APRA said this increase is largely attributable to changes to the asset test exemption.

Changes to Australian tax laws introduced last year meant that those taking out a complying annuity after September 20, 2004, would only receive a 50 per cent asset test exemption for social security purposes instead of the previous 100 per cent exemption.

The release by APRA of its latest life insurance statistics also suggest life insurers are in a strong position to back potential claims by policyholders and deliver good returns.

The APRA report, which is based on statistical information gathered from 37 life insurance companies, also shows that companies have more in their pockets to fund potential claims, with assets backing Australian policyholder liabilities worth $194.7 billion at the end of September 2004, an increase of 6.7 per cent over the past 12 months. Premiums rose by 5.2 per cent to $35.8 billion over the same period.

“Overall, the industry continues to provide strong capital backing to policyholder benefits and, with improved investment markets, should be providing policyholders and shareholders with good returns,” APRA member Steve Somogyi said.

The majority of inflows into life insurance came through superannuation, with super assets representing 86.7 per cent of the total assets in life office statutory funds.

However, the report also showed that life offices only accounted for 26 per cent of all super assets in Australia, down from a high of 44.3 per cent in June 1992.

“The industry continues to evolve as it responds to consumer demand and market rationalisation, particularly as part of the wealth management sector,” Somogyi said.