Insurance losses attributed to adverse cycle
The significant losses reported by major insurers in Australia could be attributed to companies pricing for good times but not for tough times, according to Clearview managing director Simon Swanson.
His comments came on the back of major insurer Reinsurance Group of America (RGA) announcing a significant decline in profitability and attributing it to an adverse life insurance experience in the Australian market.
The company said the bulk of the loss related to a US$184 million after-tax charge in Australia as a result of increasing claims liabilities — and its comments have caused discussion in the Australian financial services market because it follows on from AMP Limited's inter-related recent adverse life/risk results.
What is more, Swanson pointed to the different treatment of life/risk outside of superannuation being an issue — along with different pricing with respect to new and existing income protection policies, with some new policies being priced 20 per cent to 30 per cent cheaper.
However, TAL chief executive Jim Minto said what had happened was a simple reflection of the manner in which the market had entered a new phase in the cycle post the global financial crisis.
"The post-GFC cycle arrived late but, having arrived, it has stayed and has served to make conditions very difficult with no short-term fixes," he said.
Both Swanson and Minto denied suggestions that the losses incurred by AMP and RGA reflected mismanagement of member claims either by insurers or superannuation funds, but they acknowledged that the aggressive group tendering processes run by consultants had seen initially low pricing rise as the market turned and as claims experience went up.
Minto suggested that the increase in claims would likely lead to a tightening in conditions and noted an increase in the number of long-dated total and permanent disability (TPD) claims, some of them dating back as far as 10 years.
The RGA results, released in the US on Friday, noted that the company's Australian operation recorded a US$300 million pre-tax operating loss, made up of a US$274 million pre-tax increase in group claims liabilities and poor claims experience in the Australian operation's individual businesses.
Industry analysts expressed surprise that the bulk of the RGA claims charge related to Group TPD, which had not been particularly identified as a source of industry profitability deterioration.
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