Australian general insurers achieve decade-high return on equity

Australia’s general insurance industry posted its highest return on equity (ROE) in 10 years for the 2025 financial year (FY25), according to the latest Optima Report from actuarial consultancy Finity. The sector achieved a 19% ROE, up six percentage points from the previous year. This performance was attributed to benign weather, strong investment gains, and the continued flow-through of premium increases.

The annual Optima Report provides an independent assessment of the general insurance market, drawing on economic trends and sector analysis. Pravesh Ponna, principal at Finity and lead author of the report, said the sector’s decade-best results are occurring alongside increasing financial stress. “Businesses are cutting back, households are feeling the pinch, and economic confidence is fading. The industry’s results tell us as much about the resilience of insurers as they do about the challenges facing Australia’s risk landscape,” Ponna said.

Financial performance and intermediary activity

Key financial indicators for FY25 included:

• Gross written premium (GWP) growth of 6%, a slowdown from the double-digit increases seen in prior years as inflationary effects moderated.
• A net combined operating ratio of 93%, representing a three-point improvement over FY24 and ranking among the best results in recent years.
• Investment returns of 6.5%, marking the second year of record performance.
• Reduced reinsurance expenditure, with cession rates falling for a second consecutive year as market conditions stabilised.

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The findings from Finity align with the latest data from the Australian Prudential Regulation Authority (APRA), which reported that Australia’s general insurance sector saw revenue of $19.7 billion for the June quarter, slightly above the previous quarter. Claims and related expenses totalled $13.9 billion, and the net insurance service result increased to $2.67 billion. The sector’s total assets were $140.9 billion, with net assets of $41.2 billion and a return on net assets of 5.8%.

Total premiums invoiced through intermediaries reached $21.5 billion for the six months to June 2025. Of this, $17.6 billion was placed with APRA-authorised general insurers, $2.6 billion with Lloyd’s underwriters, and $1.3 billion with unauthorised foreign insurers (UFIs). The number of intermediaries in the market rose to 1,740, up from 1,717 at the end of 2024. Direct business gross written premium by APRA-authorised general insurers, excluding Lloyd’s, was $35.6 billion for the same period. Intermediaries accounted for half of this business, highlighting their ongoing importance in the distribution chain.

Economic headwinds and risk landscape

The 2025 Optima Report identifies several macroeconomic and risk trends likely to influence the insurance sector:

• The labour market remains tight, with wage growth continuing to outpace productivity, which may complicate efforts to manage inflation.
• Insolvencies are on the rise as businesses contend with higher costs and shrinking margins.
• Households are reducing discretionary spending, which is impacting demand for non-essential insurance products.
• After a year of relatively mild weather, insurers are preparing for a possible return to more frequent and severe natural catastrophe losses.
• Cyber threats are becoming more sophisticated, with both criminal and state actors targeting essential services and smaller enterprises.
• The adoption of artificial intelligence is changing business operations and risk management approaches.

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“Insurance mirrors the real economy. When households feel the strain or small businesses close, insurers feel it too. The industry’s resilience this year reflects both discipline and some temporary tailwinds,” Ponna said.

Sector prepares for a period of transition

While the FY25 results demonstrate strong underwriting and risk management, Finity cautions that the coming year will test the sector’s resilience as economic and risk factors evolve. “The sector has proven its strength. Now it must navigate the next phase, one defined by tighter growth, shifting risks, and the need for sharper strategic focus,” Ponna said.

Looking ahead, Finity projects that sector profitability will moderate in FY26, with ROE expected to ease to 13%. The report anticipates that lower investment yields, higher natural peril costs, and slower premium growth will bring the industry back to its “through-the-cycle” target range of 10% to 15% ROE. Premium growth is forecast at 4.5% for FY26, with competition in commercial lines expected to intensify.

Industry research from GlobalData forecasts that Australia’s general insurance market will reach $144.5 billion in direct written premiums by 2029, with a compound annual growth rate of 8.8%. The sector’s expansion is expected to be driven by increased demand for coverage against climate-related events, inflation, and heightened health awareness.