The Australian and New Zealand insurance industries can look forward to a profitable year, despite an increasingly complex global risk landscape that has made holistic risk management strategies essential.

The Allianz Risk Barometer reveals the top three risks for global companies this year to be business interruption and supply chain issues, natural catastrophes and fire/explosion.

In Australia the No.1 risk is also business interruption and supply chain issues, followed by changes in legislation and regulation and loss of reputation.

In last year’s survey regulatory risk was down in eighth place. This year it is rated higher in Australia than in any other country surveyed.

Allianz Australia MD Niran Peiris believes this anomaly may be a result of “increased regulatory proactivity by financial regulators and policymakers following the global financial crisis”.

He says regulatory changes over recent years, “as well as foreshadowed reviews or changes in the areas of financial services regulation and carbon taxation/renewable energy, might also be impacting here”.

The report highlights heightened concerns about cyber threats and reputational risks.

Globally, cyber risk is the biggest mover, climbing from 15 to eight on the world list, while reputation lifts from 10 to six.

In Australia, cyber risk ranks fifth this year; it didn’t even make the top 10 in the last report. Loss of reputation/brand value is ranked third, up from fifth last year.

The report finds the global risk landscape is evolving fast and becoming increasingly complex due to “growing interdependency of different industries and processes”.

This means “there is an increasing need for deployment of holistic, state-of-the-art risk management and mitigation strategies”.

Allianz Global Corporate and Specialty Pacific GM Holger Schaefer says identifying the impact of interconnectivity between different risks is a top priority for risk managers.

“Today’s business continuity plans must prepare for an increasing range of risk scenarios, which need to reflect the sometimes hidden knock-on effects.

“For example, a natural catastrophe can result in business interruption, IT systems failure and power blackouts, among other perils.”

Despite the high-risk backdrop, ratings agency Fitch has given the Australian and New Zealand insurance industries a stable outlook for the year ahead.

The agency says Australian companies are well placed to meet current challenges.

In the general insurance sector the agency expects the strong earnings momentum of 2013 to continue into 2014, “assuming a more typical natural catastrophe loss experience and no major adverse movements in credit spreads”, Fitch says.

In the life sector, it expects a “continuation of strong top-line growth”.

However, earnings will remain under pressure from rising lapse and claims rates and reduced investment earnings.

The outlook could be revised to negative if the economy took a strong downturn, while more severe and frequent natural catastrophes could also pose a threat.

In New Zealand, Fitch says regulatory changes have benefitted the insurance sector’s overall credit profile.

It expects earnings for life and non-life to continue to diverge, with the loss of significant tax concessions and competition driving down the life sector’s profitability.

In non-life, stronger earnings are coming through from premium rate increases and the stabilisation of Christchurch earthquake claims reserves.

Reinsurance capacity – vital for New Zealand’s insurance sector and wider economy – remains available, Fitch says.

“Moreover, reinsurance recoveries currently provide the New Zealand economy with an extremely large and externally funded economic stimulus that is expected to equate to about 15% of GDP over the next five years.”