Big insurer, big profit fall

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TAL, the nation's second largest life insurer, has had a 57% fall in first half profit amid customers letting policies lapse and a surge in claims.

Previously Tower Australia before being bought by Japan’s Dai-ichi Life in 2011, TAL has posted a net profit of $29 million for the six months to September 30, down from $68m it says is due to negative claims experience and changes in discount rates this year.

TAL’s underlying profit for the six months to end September was $46 million, down from $70 million in the previous corresponding period, after removing the effect of non-cash items such as amortisation and changes in discount rates.

The company experienced a higher level of claims on living insurance products – disability, income protection and trauma cover – and as a result has had to make higher provisions for claims which also reduce earnings, it said.

TAL Group CEO Jim Minto said negative claims experience had affected the entire life insurance industry, and he expected an adjustment period while the industry tried to improve the outlook.

“The reporting season has revealed a higher level of claims and lapses than insurers had expected.”

Minto said efforts were continuing to help reduce lapses, by better informing customers about the high value of life insurance which can forestall a financial crisis when an income suddenly stops, permanently or for an extended period.

“Family budget pressures and price shopping behaviour have also had a big impact due to the ongoing economic uncertainty as Australians continue to reduce costs and save more. The concern is that people do not maintain adequate cover and it is only at claim time that customers realise the major consequences of that decision to cut back or lapse.”

It is not all bad news. While TAL has seen larger effects from claims, it has – partly as a result of price adjustments – been able to grow to become Australia’s second largest life insurer as measured by in-force premiums, said Minto.

TAL increased its premium and other revenue by 15% to $1.1 billion, compared to the prior comparative period.

New business grew 33% compared to prior comparative period to $261 million, while total in-force premium grew 16% to $1.76 billion.

TAL’s embedded value also grew by $132 million to $1.894 billion in the period.

“While there has been publicity about price increases for life insurance within superannuation, the availability of life cover in super has resulted in many people getting access to cover they might not otherwise have obtained,” Minto said.