Global credit ratings agency, AM Best, has assigned a stable outlook on the New Zealand non-life insurance segment, citing its expectations of solid premium growth in the market, which is heavily owed to strong, ongoing rate improvement, particularly in the property and motor segments.
Best also highlighted other positive factors, such as the primary non-life market’s resilient performance despite significant weather-related claims and high inflation, as well as its “good buffer” in risk-adjusted capital to absorb some volatility and a strong regulatory framework.
Moreover, the agency noted that countervailing factors for this segment outlook also include New Zealand’s increasingly volatile weather conditions.
Tightening reinsurance capacity and reinsurance rate increases, are also expected to drive increased volatility in primary insurers’ earnings, according to Best.
Victoria Ohorodnyk, director and head of analytics for Southeast Asia, Australia and New Zealand, AM Best, said: “Earnings in 2023 are expected to be materially impacted by significant weather-related claims, owing to January’s Auckland Anniversary Weekend floods and February’s Cyclone Gabrielle.
“These two events, considered New Zealand’s most significant weather events of the century thus far, are expected to have a significant impact on the industry’s bottom line in 2023.”
It is important to note, that New Zealand’s non-life insurers usually tend to buy catastrophe excess-of-loss reinsurance with a coverage limit up to an expected 1-in-1,000-year loss, which is materially higher than in other non-life markets globally. This is driven by New Zealand’s regulatory capital requirements.
Yi Ding, senior financial analyst, AM Best, commented: “As a result of the high utilisation of catastrophe reinsurance, reinsurers are likely to bear most of the claims costs arising from the flooding and cyclone events during the first quarter of 2023. However, the need to have a high level of reinsurance coverage exposes primary insurers to elevated reinsurance pricing risk going forward.”
