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The outlook for New Zealand’s insurers is “solid” despite ongoing high levels of natural disaster claims, according to S&P Global Ratings.
In its Asia-Pacific wide report, the firm says it expects New Zealand insurers to maintain “sound profitability” due to comfortable levels of reinsurance coverage, with solid economic prospects supporting both premium and volume growth.
“Overall, it’s a stable outlook across both the life and non-life sectors,” analyst Mark Legge told Insurance Business. “There are continuing sound economic conditions with reasonably good growth and low levels of unemployment, which underpins a good demand for insurance cover, particularly in the non-life space.”
“Reinsurance has a supporting role in the non-life sector, and the reinsurance industry has been characterised by a lot of excess capital for a number of years,” he explained. “Consequentially, prices have come down, and New Zealand insurers have been able to benefit from competitive prices and favourable terms and conditions. That’s very important for a country that has a lot of exposure to natural catastrophes.”
Nonetheless, Legge says the firm is aware that there are “significant challenges” being faced by the sector – namely, residual claims still coming through from the 2011 Canterbury earthquakes, including overcap EQC claims, and an unusually high number of weather events occurring over the last two years. Despite this, however, he says most insurers have managed to bear those costs relatively well.
“These issues showcase the complex nature of the 16 different events which occurred in Canterbury, and those remaining claims will likely take a number of years to fully play out,” he said. “The weather events over the last two years have also been higher than most insurers have allowed for, but due to reinsurance capacity and some solid price rises coming through, they have been able to manage those costs well.”
S&P Global Ratings also highlighted the ongoing regulatory scrutiny of the insurance sector, saying any negative findings will have the potential to significantly affect an insurer’s operations – a situation highlighted by the damage to AMP’s brand and reputation following disclosures as a result of the Royal Commission. According to the firm, conduct and disclosure will continue to be a key focus for the regulators over the coming years.
“There are various ongoing reviews being undertaken to better understand how the conduct side is panning out,” said Legge. “At the moment, we’re not aware of any significant adverse findings, but there are certainly risks to insurers if they sustain damage to their brand or reputation.
“Nonetheless, the recent financial results from some of the major players have indicated a fairly solid operating performance,” he concluded.
