New Zealand’s life insurance sector is poised to grow premiums by around 1-2% over each of the next three years, according to S&P.

Premiums grew by 2.8% over the year to March, with declining volumes in some classes such as consumer credit insurance offset by modest growth in term and trauma products.

“We expect growth in written premiums for the sector to be in the low single digits as a result of softer economic conditions,” the ratings agency says. “Broad government stimulus measures and the earlier than expected reopening of the economy is likely to moderate claims inflation for income protection lines of business.”

The ratings agency says New Zealand’s exposure to pandemics is low and its mortality risk “highly predictable and well understood” and managed by the life insurance sector.

“Our view is unchanged by the COVID-19 pandemic, given the very low exposure in New Zealand and backstop of reinsurance protection,” it said.

Life insurers in New Zealand have limited exposure to the effects of COVID-19. The industry's overall product portfolio mostly consists of traditional individual risk protection, which is largely unaffected due to the low mortality rate of COVID-19 in New Zealand.

But S&P says claims pressure may persist in income protection as a result of economic and social pressures. However, this is a small proportion of the overall portfolio.

The ratings agency forecasts life industry return on equity of around 12-13% over the next three years and says while top-line premium volumes may decline further through 2020, claims are expected to remain stable.