APRA shares annual report on general insurance claims development

For long-tail classes of business, the following figures were reported for 2021:

CTP motor vehicle: 84.4% estimated ultimate loss ratio
Public and product liability: 51.9% estimated ultimate loss ratio
Professional indemnity: 66.7% estimated ultimate loss ratio
Employers’ liability: 71.6% estimated ultimate loss ratio

These sectors of general insurance are those where claim payments are made more than 12 months following the incident generating the claim.

According to APRA, the ultimate loss ratio for CTP motor vehicle in 2021 remained in line with what was seen in 2018, 2019, and 2020, but was lower than the years before that. Similarly, reserve levels also remained unchanged, “with the only significant reserve release occurring in the 2020 accident year.” 

For public and product liability, the loss ratio for 2021 was lower than previous years due to recent increases in gross earned premium. There was also reserve strengthening across 2016 and 2020.

For professional indemnity, the ultimate loss ratio in 2021 was slightly higher than 2020, as premium increases were offset by increases in expected future claims. Additionally, APRA saw reserve strengthening across 2016 and 2020.

Finally, employers’ liability saw a loss ratio that was lower than recent years, driven by premium increases. The sector also experienced reserve strengthening across 2019 and 2020 as reserve levels remained unchanged from previous years.

Short-tail business classes, meanwhile, recorded the following figures for 2021:

Houseowners/householders: 62.1% estimated ultimate loss ratio
Domestic motor vehicle: 60.7% estimated ultimate loss ratio
Fire and ISR: 59.3% estimated ultimate loss ratio
Commercial motor vehicle: 58.6% estimated ultimate loss ratio

Unlike long-tail classes, these sectors involve claims payments that are made less than 12 months after the claim generating incident. Considering this shorter period, the ultimate claims cost estimate for most of these classes revealed little development over time.

According to APRA, the ultimate loss ratio for houseowners/householders was higher than the 10-year average of 56.7%.

For domestic motor vehicle, the loss ratio was lower than the 66.9% 10-year average, which was driven by a reduction in claims frequency due to COVID-19 lockdowns.

Similarly, Fire & ISR claims recorded an ultimate loss ratio that was lower than the 10-year average of 69.6%. However, pandemic-related business interruptions did lead to a spike in the ratio for the year 2020.

Finally, commercial motor vehicle claims in 2021 led to an ultimate loss ration that was lower than the 66.8% 10-year average, continuing a downward trend caused by premium growth and pandemic-related claims frequency reduction.