Profitability at property and casualty (P&C) insurers in New Zealand will decline significantly this year in the face of record weather event claims, inflationary pressures and ballooning reinsurance premiums, S&P Global Ratings says. .
Claims from several major natural disasters, including unprecedented flooding around Auckland in January and Cyclone Gabrielle last month, will squeeze the insurer’s margins and weaken profitability.
“We expect earnings to be lower in 2023 than in previous years,” the rating agency said in a New Zealand Insurance Outlook report. “Increasing reinsurance prices will further constrain profitability.”
S&P says adequate capital and access to group and reinsurance resources will underpin the creditworthiness of New Zealand-based insurers this year, saying they “have sufficient capital buffers to cope the potential challenges ahead”.
While natural disasters will reduce the profits of P&C insurers, life insurers must grow steadily and generate “at least some profit”.
New Zealand insurers face rising claim costs and expenses due to unprecedented inflationary pressures and higher reinsurance costs, says S&P, which rates the insurance sector which is “stable”.
New Zealand has been hit by several catastrophic events in February 2023, including hurricanes, floods, and earthquakes, it said, resulting in material property insurance claims, and there is “likely to have a second round effects,” driven by supply constraints in services and materials.
Strong reinsurance support from both the private market and Toka Tu Ake EQC will take a large share of claims, it said.
The Insurance Council of New Zealand (ICNZ) said insurers received 47,936 claims with insured losses of more than $NZ1 billion ($919 million) from the floods that began on January 27, and a further 30,000 claims after Cyclone Gabrielle .
The two events produced twice as many claims as the result of the 2016 Kaikōura earthquake, causing insured losses of more than $2 billion.
To date, 11% of Auckland flood claims totaling $NZ111 million ($102.79 million) have been paid.
Suncorp received more than 22,000 claims across its Vero and AAI Insurance brands following the two events, while the Tower estimated a cost of $NZ95 to 125 million ($86.9-114.4 million) for the Auckland flooding event, which is expected to -trigger excess reinsurance. of $11 million and is almost covered by that arrangement.
Tower went to market last week and put up reinstatement cover of the reinsurance it says will ensure adequate protection for two additional catastrophe events until September 30.
Tower forecast fiscal 2023 underlying net income of $NZ18-23 million ($16-21 million), up from $NZ27.3 million ($25.3 million) in the year to September 30 2022.
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