Domestic insurers’ profit margins have declined over the past year, according to the latest report from the Reserve Bank of New Zealand.
In its latest
Financial Stability Report, the
RBNZ said the general insurance sector accounted for 61% of total gross earned premiums, life insurance accounted for 24%, and health insurance accounted for 15% for the year ended in June.
For the sector as a whole, gross earned premiums increased by 9% to $9.1 billion, whereas gross incurred claims increased by 52% to $8 billion. As a result, the industry’s gross loss ratio increased sharply over the year from 63% to 88%, the report said.
According to RBNZ, the reduction in profit margins reflects an increase in claims associated with the Kaikoura earthquake and a number of significant weather-related events in 2017.
Despite reduced profit margins for domestic insurers, the report said the sector continues to be well supported by international reinsurers.
A series of extreme events, including hurricanes in the Caribbean and the United States and earthquakes in Mexico, has significantly impacted the profits of international reinsurers.
“For New Zealand, a more immediate issue for general insurers is likely to be the need to review levels of reinsurance in light of updates to catastrophe risk models following the Canterbury earthquakes,” RBNZ said. “General insurers are required to hold catastrophe protection for a 1-in-1,000 year event, and insurers will be reviewing their catastrophe cover to ensure they continue to meet this requirement.”
The report also showed that general insurers have been experiencing higher claims within their motor insurance portfolios.
The commercial insurance market remains very competitive, particularly for commercial property, and insurers’ underwriting discipline is being tested as they try to balance sales objectives and underwriting quality, the bank said.
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