AM Best, the global credit ratings agency, is maintaining a stable outlook on the New Zealand non-life insurance segment, citing the sector’s robust premium growth supported by rate adjustments, notably within the property, motor and commercial segments, in spite of a challenging economic environment.
The agency also cites positive factors, including, good capital buffers, which support insurers’ ability to absorb some shocks from claims volatility, and robust investment yields amid high domestic interest rates, despite recent rate cuts.
Countervailing factors for this non-life segment outlook include New Zealand’s increasingly volatile weather conditions, prompting tighter underwriting and greater reliance on reinsurance, AM Best added.
However, despite there being strong signs of stabilisation across the reinsurance segment, capacity constraints and higher costs may continue to impact primary insurers’ earnings.
Meanwhile, AM Best revealed that it expects non-life premium growth to remain robust over the near term and on par with prior years, when New Zealand’s non-life gross written premiums recorded average annual growth in the mid- to high single digits.
It’s worth noting that in 2023, the industry saw significant rate adjustments following the Auckland Anniversary Weekend floods and Cyclone Gabrielle, which occurred early in the year and currently remain the catastrophes with the two largest non-earthquake losses in New Zealand’s history.
Additionally, AM Best explained that rate adjustments were a key driver of non-life premium growth that exceeded general inflation, which has declined steadily from its peak of 7.3% in the second quarter of 2022, to 2.2% in the third quarter of 2024.
“The property and motor segments recorded the largest rate adjustments, reflecting the growing exposure to natural catastrophes and rising repair costs caused by ongoing inflationary pressure and supply chain disruptions,” commented Victoria Ohorodnyk, director and head of analytics for Southeast Asia, Australia and New Zealand, AM Best.
As well as this, insurance premium growth is expected to moderate over the near term, as the industry recorded improved profitability in fiscal year 2024, mainly due to benign natural catastrophe activity.
AM Best also stated that the capital adequacy of New Zealand’s non-life market remains robust.
In fact, insurers have successfully absorbed the impact of the 2023 major weather-related events, owing to the comprehensive reinsurance coverages in place.
“To date, 2024 has been a relatively benign year from a catastrophe risk perspective, with fewer significant weather-related events than in prior years, easing some of the pressure on insurers’ claims expenses and allowing them to build up their capital buffers,” said Yi Ding, associate director, AM Best.
