Profitability at property and casualty (P&C) insurers in New Zealand will dip substantially this year in the face of record weather event claims, inflationary pressures and ballooning reinsurance charges, S&P Global Ratings says.

Claims from multiple large natural catastrophes, including unprecedented flooding around Auckland in January and Cyclone Gabrielle last month, will squeeze insurer margins and weaken profitability.

“We expect earnings to be materially lower in 2023 than in recent years,” the ratings agency says in a New Zealand Insurance Outlook report. “Rising reinsurance prices will further constrain profitability.”

S&P says strong capital adequacy and access to group and reinsurance resources will underpin the creditworthiness of New Zealand-based insurers this year, saying they "have adequate capital buffers to withstand the potential challenges ahead”.

While natural catastrophes will curtail earnings of P&C insurers, life insurers should grow steadily and generate “at least modest profit”.

New Zealand insurers face rising claims costs and expenses due to unprecedented inflationary pressures and a higher cost of reinsurance, says S&P, which rates the insurance sector “stable”.

New Zealand was hit by several catastrophe events in February 2023, including storms, floods, and earthquakes, it says, resulting in material property insurance claims, and there is "likely to be second round impacts,” driven by supply constraints across services and materials.

Strong reinsurance support from both the private market and Toka Tu Ake EQC will absorb a large portion of claims, it says.

The Insurance Council of New Zealand (ICNZ) says insurers have received 47,936 claims with insured losses of more than $NZ1 billion ($919 million) from the flood that began January 27, and a further 30,000 claims after Cyclone Gabrielle.

The two events have produced twice as many claims as made as a result of the 2016 Kaikōura earthquake, which caused insured losses of over $2 billion.

So far, 11% of Auckland flood claims totalling $NZ111 million ($102.79 million) have been paid.

Suncorp has received more than 22,000 claims across its Vero and AAI Insurance brands following the two events, while Tower estimates a cost of $NZ95 to 125 million ($86.9-114.4 million) for the Auckland flood event, which is expected to trigger a reinsurance excess of $11 million and to be mostly covered by that arrangement.

Tower went to the market last week and placed reinsurance reinstatement cover which it says will ensure sufficient protection for two additional catastrophe events until September 30.

Tower has forecast fiscal 2023 underlying net profit of $NZ18-23 million ($16-21 million), down from $NZ27.3 million ($25.3 million) in the year to September 30 2022.