Australia is trying to overhaul the public programs that protect citizens against the risk of disability, but problems with existing commercial disability products are what’s giving insurers there headaches today.
Reinsurance Group of America Inc. has responded to the trends in the Australian disability market by suspending all new sales of one type of reinsurance — for group total and permanent disability in Australia — and being “extremely selective” in other areas of the country’s group insurance market.
RGA is reporting a $50 million net loss for the second quarter on $2.6 billion in revenue, compared with $141 million in net income on $2.4 billion in revenue for the second quarter of 2012.
Profits in most operating units were up, but, in the Asia Pacific unit, includes Australia, the company is reporting a $286 million pre-tax operating loss, compared with $23 million in net operating income for the comparable quarter in 2012.
The company is taking a $184 million charge in the quarter, and most of the charge reflects an increase in reserves for reinsurance for “total and permanent disability” (TPD) coverage.
TPD coverage provides a lump-sum payment to insureds who suffer severe disabilities.
In Australia, direct writers have been selling TPD coverage as an add-on bundled together with “superannuation funds,” or mandatory retirement funds, RGA executives said during the company’s second-quarter earnings call.