Executives of Australian life and health insurance companies are upbeat about the industry' prospects in 2023 as signs point toward better market conditions and profitability.
The optimistic outlook followed strong underlying results in the fiscal first half of 2023. Even Medibank Pvt. Ltd., whose stock was shocked by a cyberattack late in 2022, managed to record a year-over-year hike in underlying net profit after tax of 6.7% to A$226.7 million. The breach, which led to a class-action lawsuit, negatively affected market share and policyholder growth in the fiscal first half of 2023, but the insurer expects to be in a strong position to regain momentum in the second half.
"The lessons we have learned from the cybercrime will continue to shape our response, and we will emerge a stronger business," Medibank CEO David Koczkar said during an earnings call. "We are well positioned to grow on multiple fronts."
Jefferies equity analyst Vanessa Thomson also anticipates that Medibank will recover from the impact of the cyberattack by year-end, noting that the insurer has managed to maintain net resident policyholders since the incident. As such, the risk of related market share losses has been reduced.
"Business as usual post cyber crime should be seen by year end with the increased prioritization of [private health insurance] and higher rate environment supporting profitability," Thomson wrote in a research note, retaining a "buy" rating for Medibank.
ClearView Wealth Ltd. logged the highest year-over-year percentage increase in underlying net profit after tax among Australian life and health insurers at 31% to A$16.3 million for the period, thanks to improving profit margins in its core life insurance business.
Meanwhile, the underlying operating profit of Nib holdings Ltd. rose 13.3% year over year to A$125.1 million, and NobleOak Life Ltd.'s underlying net profit after tax grew 19% to A$5.4 million. Generation Development Group Ltd. had a minimal year-over-year increase in underlying profit after tax for the fiscal first half at 3% to A$2.9 million.
Investments came through
Some Australian life and health insurers saw higher investment income year over year in the fiscal first half of 2023 on the back of rising interest rates.
NobleOak recorded a 1,021% year over year increase in investment income to A$1.1 million during the period, with the insurer noting in its earnings release that investment returns materially increased during the period due to higher market interest rates and the diversification of the strategic investment asset allocation to short-duration fixed interest asset classes.
Higher interest rates and narrowing credit spreads boosted Medibank's net investment income 80.9% to A$55.9 million, according to the company's earnings document. Nib's net investment income climbed 47.0% year over year to A$22.2 million.
ClearView Wealth's investment income came in at A$68.9 million, significantly down year over year from A$85.3 million. Responding to a question about the outlook on ClearView Wealth's investment portfolio, CFO Athol Chiert said during an earnings call that rising interest rates are positive for the company on underlying net profit after tax.
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Better profitability on the horizon
Improving profitability is in the cards for Australia's life insurance industry over the next 12 months, supported by continued improvement in the profitability of individual disability income insurance and premium rate hikes across all business lines, according to S&P Global Ratings. For health insurance, solid premium growth and a post-pandemic stabilization in claims frequency are expected to drive strong profitability.
Australia's biggest life and health insurers are keen to take advantage of favorable industry fundamentals to grow their major business lines, with NobleOak gearing up to grow its direct business as the market improves.
ClearView Wealth also plans to ramp up its focus on new business and distribution network growth as it intends to capture opportunities from the improving life insurance market, Managing Director Simon Swanson said during an earnings call.
"After a difficult period for the life insurance industry, signs of revival are emerging," Swanson said. "The industry's recent return to profitability followed positive structural and regulatory changes, including capital charges, product changes and repricing of historical portfolios."