Insurance clock keeps ticking

In our July market update we discussed the signs of a slowdown in premium increases within the commercial insurance market. This trend has continued in recent months, with indications we are now entering a softer market phase.

The New Zealand insurance market is dominated by two major insurance groups, IAG and Suncorp, which trade under the brands of NZI, State and AMI, and Vero and AA Insurance respectively.

Both insurance groups reported strong financial results at 30 June 2024, driven by significant growth in insurance premiums and a reduction in perils losses over the past 18 months. This has been aided by a stabilisation in reinsurance costs.

As a result, the New Zealand insurance market is now showing distinct signs of softening in many areas.

This trend reflects the global situation where pricing has been stabilising for the past six months, despite ongoing significant global losses from extreme climate events. The table below shows the costs of insured catastrophic events in the first three quarters of each year since 2014. The improvement in 2024, however, excludes any costs from Hurricane Milton, which are expected to be sizeable.

Due to the continued climate-related claims in America, global insurance and reinsurance markets are seeking to diversify their portfolios away from the USA. This means that markets such as Lloyd’s of London are pursuing underwriting business in New Zealand more aggressively. This rising appetite for New Zealand risks is driving market competition, particularly in the large corporate area.

Whilst this is positive news for customers, there remains some uncertainty on how the global insurance market will perform given the impact of increasing climate events and significant geopolitical uncertainty.

Inflation in the New Zealand insurance sector was 12.9 percent year-on-year at September 2024 compared to the overall CPI rate of 2.2 percent according to Stats NZ. However, this was the first sign of a drop in the insurance inflation rate since December 2023.

On the whole, we expect insurance company pricing to continue to reduce in the coming months but this will not be a ‘one size fits all’ approach. Insurance companies are scrutinising individual risks more closely and taking a much more granular approach to underwriting. Well-managed risks, with good claims histories, will be looked at more favourably than others.