This report does not constitute a rating action.
Key Takeaways
- Strong capital adequacy and access to group and reinsurance resources will underpin the creditworthiness of New Zealand-based insurers in 2023.
- Natural catastrophes will curtail earnings of P/C insurers. Life and health peers should see at least modest profitability.
- New Zealand insurers face varying degrees of rising claims costs and expenses due to unprecedented inflationary pressures and higher cost of reinsurance.
The fortunes for New Zealand insurers are likely to diverge in 2023. The property/casualty (P/C) players are set to face higher claims due to multiple sizable natural catastrophes. This will squeeze margins and weaken profitability. Meanwhile, the life and health peers are likely to grow steadily and generate at least modest profit.
S&P Global Ratings believes New Zealand insurers have adequate capital buffers to withstand the potential challenges ahead.
Our stable rating outlook applies across the life insurance, P/C, and health insurance sectors in the country.
P/C Insurance
New Zealand P/C insurers will experience weaker profitability in 2023. The country was hit by several catastrophe events in February 2023, including storms, floods, and earthquakes, resulting in material property insurance claims. There's also likely to be second round impacts driven by supply constraints across services and materials.
P/C insurers benefit from strong reinsurance support from the private market and Toka Tu Ake EQC, which will absorb a large portion of claims. However, we expect earnings to be materially lower in 2023 than in recent years. Rising reinsurance prices will further constrain profitability.
Meanwhile, these insurers' earnings profile will benefit from improved investment earnings in 2023 due to higher yields and some unwinding of unrealized losses on investment portfolios.
P/C insurers' capital adequacy should remain a credit strength in 2023. The heightened natural catastrophe claims will largely be absorbed through current year earnings and reinsurance covers.
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Life Insurance
New Zealand life insurers' profitability is set to improve modestly over the next 12 months. Sound underwriting practices, scale efficiencies, and premium-rate rises across all lines will drive the gains.
Increased insurer scale after five years of industry consolidation should add operational efficiencies. Higher interest rates will also provide some profitability uplift as insurers release reserves on long-tail products and benefit from higher yield on reinvestment.
Capital adequacy continues to be a strength and should remain solid, with ownership largely from supportive offshore parents.
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Health Insurance
The profitability of New Zealand's health insurers is set to remain modest over the next 12 months. Industry players will likely target higher loss ratios to return benefits to customers after record profits during the pandemic. The dominant player, which operates as a mutual and targets a high payout ratio, will drive the industry's profitability. Normalization of claims frequency post-pandemic will depend on capacity in the healthcare system.
Profitability will be supported by premium growth and higher investment earnings. Capital adequacy will remain a credit strength.
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Related Research
- Credit Conditions Asia-Pacific Q1 2023: Still Above Water, Dec. 1, 2022
- Economic Research: Economic Outlook Asia-Pacific Q1 2023: Global Slowdown Will Hit, Not Halt, Growth, Nov. 28, 2022
- Insurance Industry And Country Risk Assessment: New Zealand Life, Dec. 19, 2022
- Insurance Industry And Country Risk Assessment: New Zealand Property/Casualty, Aug. 29, 2022
- Insurance Industry And Country Risk Assessment: New Zealand Health, May 19, 2022
S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
| Primary Credit Analysts: | Michael J Vine, Melbourne + 61 3 9631 2013; Michael.Vine@spglobal.com |
| Julian X Nikakis, Sydney (61) 2-9255-9818; julian.nikakis@spglobal.com | |
| Secondary Contacts: | Angela Zhou, Melbourne + 61.2.9255.9841; angela.zhou@spglobal.com |
| Craig A Bennett, Melbourne + 61 3 9631 2197; craig.bennett@spglobal.com |
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