Best’s Market Segment Report: AM Best Assigns Stable Outlook on New Zealand’s Non-Life Insurance Segment

AM Best is assigning a stable outlook on the New Zealand non-life insurance segment, citing its expectations of solid premium growth in the market, owing to strong, ongoing rate improvement, particularly in the property and motor segments.

The Best’s Market Segment Report, “Market Segment Outlook: New Zealand Non-Life Insurance,” also notes positive factors such as the primary non-life market’s resilient performance despite significant weather-related claims and high inflation, its good buffer in risk-adjusted capital to absorb some volatility and a strong regulatory framework.

Countervailing factors for this segment outlook include New Zealand’s increasingly volatile weather conditions, along with tightening reinsurance capacity and reinsurance rate increases, which are expected to drive increased volatility in primary insurers’ earnings.

“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,” said Victoria Ohorodnyk, director and head of analytics for Southeast Asia, Australia and New Zealand, AM Best. “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.”

New Zealand’s non-life insurers typically 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.

“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,” said Yi Ding, senior financial analyst, AM Best. “However, the need to have a high level of reinsurance coverage exposes primary insurers to elevated reinsurance pricing risk going forward.”

Gross written premiums (GWP) for New Zealand’s non-life market have grown moderately in recent years, following stagnation during the COVID-19 pandemic. Non-life GWP increased by 6% in 2021 and 10% in 2022, according to data published by the Reserve Bank of New Zealand (RBNZ). The positive trend is expected to continue into 2024, due to record-high inflation and ongoing strong rate adjustments.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=337605.

AM Best will discuss New Zealand’s insurance industry in further detail at its Insurance Market Briefing – Auckland, which will take place at 4:00 p.m. (GMT+13) on Thursday, 16 November 2023, at Level 2/204 Quay Street, Auckland. For more information about the conference, please visit the event page and agenda.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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