Reinsurance costs challenge New Zealand insurance earnings

2024 experienced fewer significant weather events, alleviating claims expenses.

New Zealand’s non-life insurance sector is seen to be supported by solid premium growth driven by rate adjustments in property, motor, and commercial insurance lines, despite economic challenges, AM Best said. 

The “Market Segment Outlook: New Zealand Non-Life Insurance” report highlighted strong capital buffers and high domestic investment yields as positive factors for the segment’s resilience amid volatile claims and market conditions.

The report identified New Zealand’s increasingly volatile weather as a challenge for insurers, leading to tighter underwriting practices and increased reinsurance dependence. 

Whilst the reinsurance sector shows signs of stabilisation, capacity constraints and rising reinsurance costs are expected to continue impacting primary insurers’ earnings.

AM Best anticipates steady non-life premium growth over the near term, aligning with recent years’ trends of mid- to high single-digit increases in gross written premiums. 

In 2023, rate adjustments were significant, following the Auckland Anniversary Weekend floods and Cyclone Gabrielle, two of New Zealand’s largest non-earthquake catastrophe losses. 

These rate hikes drove premium growth beyond general inflation, which has declined from 7.3% in second quarter 2022 (Q2 2022) to 2.2% in Q3 2024. 

Property and motor insurance saw the most substantial rate increases due to rising repair costs and exposure to natural disasters, according to Victoria Ohorodnyk, AM Best’s director and head of analytics for Southeast Asia, Australia, and New Zealand.

New Zealand’s non-life insurers maintain strong capital adequacy, having absorbed 2023’s major weather events, thanks to robust reinsurance arrangements. 

Yi Ding, AM Best’s associate director, noted that 2024 has experienced fewer significant weather-related events, alleviating claims expenses and allowing insurers to strengthen their capital buffers.