Standard & Poor’s (S&P) has rated Australia’s general insurance industry “low-risk”.

Credit analyst Caroline Strahan says insurers have taken steps to manage exposure to risks such as floods and earthquakes.

Rate increases have recovered higher claims and reinsurance costs, and product deductibles and cover have been revised.

“We have a positive view on the profitability of the Australian [general insurance] sector,” Ms Strahan told insuranceNEWS.com.au.

S&P does not expect its rating to change in the medium term.

Ms Strahan says the industry’s return on equity has been above 10% for the past five years and is expected to remain at that level.

S&P also forecasts “nominal premium growth of 4-7% for [this financial year]”.

General insurance growth prospects are rated “neutral”. The industry’s gross written premium as a proportion of GDP has been about 2.6% over the past five years.

A strong underwriting performance has supported return on equity, S&P says.

“For [this financial year], we expect the net underwriting combined ratio for our rated Australian… insurers to be maintained between 90% and 95%.”

Stable investment returns and effective cost controls have further lifted profits. Insurers have cut costs through consolidation, offshoring and IT improvements, according to S&P.

The industry’s underwriting expense ratio appears to be trending downward and may fall further. 

Major Australian insurers have a history of buying catastrophe insurance programs that exceed $5 billion, which are among the larger programs worldwide, S&P says.