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Ratings agencies deliver new year outlooks

The economy and natural disasters loom as the biggest threats to Australasian insurers next year, according to Fitch.

“Rising unemployment and a deteriorating economic growth outlook would have a number of negative implications for Australian and New Zealand insurers,” it says.

“Related-party banking businesses, if affected, could weaken group credit profiles and reduce surplus capital within the insurance entities.”

Fitch warns premium income will be hit if economic growth falls below the ratings agency’s projections of 2.7% for Australia and 2.5% for New Zealand.

Natural catastrophes are a major unknown, and it is unclear what impact El Nino will have.

NSW storm damage and other weather-linked events have already cost insurers in Australia and New Zealand $2.2 billion this year.

“Larger and more frequent loss events could threaten outlooks,” Fitch says. “Initially this might only affect earnings, but an increase in the frequency of events could potentially reduce available reinsurance capacity, and lead to higher net retentions and exposures.”

Fitch is keeping its rating and sector outlooks at stable.

The agency “expects the non-life sector to strengthen earnings [next year], subject to a more benign level of natural catastrophe losses than [this year]. Better underwriting margins should be complemented by improved investment yields, but competition is affecting premium rates.”

Meanwhile, fellow ratings agency Standard and Poor’s (S&P) has delivered its own verdict on Australian and New Zealand general insurers, maintaining a stable outlook for the sector.

Insurers are starting to recoup higher costs from currency depreciation and weather-related disasters through moderate price rises in some personal lines, it says.

“The insurers we rate are very strong,” S&P analyst Caroline Strahan said. “They have very strong business and financial positions, which make them less susceptible to rating changes.”

Challenges ahead include fierce pricing competition in property and casualty insurance and reinsurance, and catastrophe risks at elevated levels.

“Insurers are still continuing to see – on renewals – requests for discounts,” Ms Strahan said.

“They have been able to retain their business but not… to put through price increases. It has been exacerbated by broker competition for business.”

Across the wider Asia-Pacific region, the credit trend for insurers is stable and industry growth is poised to outpace economic growth next year, S&P says.

Fears about the slowing Chinese economy will not cloud the region’s overall growth prospects.

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