Country profile: Australia - Australian aplomb.

(From Reinsurance)

Following nearly a decade of heavy trading losses, brought about by natural catastrophes, ballooning industrial disease claims and savage price competition, the Australian non-life insurance industry seems to have emerged from its problematic past. After the bankruptcy of HIH Insurance and a string of reinsurers in 2001 - the year that produced a combined ratio of 118.3% - the subsequent regulatory changes (including the passing of the General Insurance Reform Act 2002) resulted in the departure of many weaker companies.

One of the iconic failures was the collapse of the Medical Defense Union (MDU), partly as a result of HIH failing to pay its reinsurance liabilities. This resulted in doctors suspending operations in the absence of medical malpractice cover. The crisis eventually forced the government into a bail-out of the MDU.

These changes led to many mergers. Helped by consolidation, the industry has moved into profit. After the dramatic turnaround in the sector's profitability in 2003-04, a small drop in underwriting result was seen in 2004. According to Australian Prudential Regulation Authority (APRA) figures, private-sector gross premiums increased from A$28.3bn in 2003 to A$28.6bn (or by 1.2%) in 2004.

However, thanks to a 102% jump in investment revenues, profit after tax of the sector increased from A$3.4bn in 2003 to A$4.9bn in 2004, or by 44.6%. These trends resulted in soaring share prices for the leading companies, although recent fears of price-cutting by those wanting to capture market share have had a negative impact.

The market became much more concentrated, and the top five firms - QBE, IAG, Suncorp Metway (the only company with significant bancassurance presence), Promina and Allianz Australia - now control 72% of the non-life private sector. However, there is a substantial public sector that underwrites workers' compensation and compulsory third-party insurance in several states of the federation.

This return to profitability is attributed by the industry's trade body, the Insurance Council of Australia (ICA), to numerous factors, including: fewer claims due to lower weather-related losses; a more disciplined underwriting approach; an improved expense ratio; significant rise in equity markets; and rising investment income. At the same time, tort reform is succeeding in stabilising or reducing public liability and professional indemnity premium rates, bringing an end to a period of steep rises that resulted in many complaints against insurers. Tort reform succeeded in lowering personal-injury compensation claims after the introduction of thresholds to prevent small claims to be pursued in law courts. This, however, resulted in protest by the legal profession, who lost much business as a result. In New South Wales (NSW), the number of cases pursued in courts dropped from over 20 000 to 8400 in 2003.