Bigger is better in NZ: ratings agency

Bigger is better in NZ: ratings agency | Insurance Business

Bigger is better in NZ: ratings agency
New Zealand’s large general insurance players remain best placed for profitable growth over the coming years, according to a new report published by leading credit ratings agency Standard & Poor’s.

While exposure to New Zealand’s inherent climactic risk means it will never be plain sailing for insurers, the bigger players are better off to do well, says credit analyst Mark Legge in the report Large Players Best Placed to Thrive in New Zealand’s General Insurance Industry.

“As we see it, large insurers with strong parentage and group reinsurance arrangements are best placed to thrive in New Zealand’s general insurance market,” Legge said.

“They have encouraging earnings outlooks, ample reinsurance capacity, and capital access for growth.

“Years on from the Canterbury earthquakes and after the bouts of industry consolidation, major insurers enjoy benefits of scale, reputation, and pricing power.

“The middle market of European and US owned insurers have either not targeted or struggled to capture more than a niche, and traction of new entrants and the threat of aggregators are not likely to upset the market, in our view.”

The report goes on to outline that demand for insurance products should be buoyed by expected moderate economic growth over the medium term, with S&P forecasting GDO growth of 2.6% in 2015 and 2.5% in 2016.

“We believe demand will also be assisted by greater consumer awareness of the importance of adequate insurance cover following the Canterbury earthquakes, which will influence both policy count and sum insured levels,” the agency said.

The New Zealand market had proved more difficult than Australia for some new entrants to gain solid growth, it said, due to a number of reasons:
  • Established brand names and extensive distribution networks of the large general insurers,
  • Entrenchment of the market leaders,
  • High degree of bank and broker distribution
  • Consumer demand for insurer financial strength and surety of capacity post the earthquake events.