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Rate gains, reinsurance underpin robust earnings outlook: S&P

General insurers will generate strong earnings for the next few years, supported by premium increases and robust reinsurance protection, according to S&P Global Ratings.

Gross written premium (GWP) is forecast to rise about 3% this year and next, with operating performances benefitting from sound underwriting practices and significant rate gains for select lines.

Primary Credit Analyst Craig Bennett told increases from improvements in commercial lines took effect in the first half of this year, with benefits still emerging. “Retention has been maintained while putting rate rises through,” he said.

S&P-rated companies are expected to achieve a weighted return on equity of about 14% this year and next.

“We view Australia’s rated insurers as well placed to contend with current challenges relating to high natural peril claims costs, pricing and earnings weakness in some product lines, the emergence of market disruptors and a sustained period of low investment yields,” S&P says.

Natural peril claims have been steadily increasing amid more frequent medium-size events and growing population density in affected areas.

In the first half, GWP growth was overshadowed by a 7.9% annualised increase in claims, mainly due to Cyclone Debbie and a Sydney hailstorm. But the net combined operating ratio for the half was “a respectable” 92% as insurers pursued mitigation strategies.

Insurers with more conservative settings for their natural peril budgets and reinsurance programs are expected to continue to be well placed to maintain earnings.

Major insurers are also responding to evolving competitive threats by engaging with disrupters and exploring new processes and products.


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