Fitch Ratings has predicted Australian insurers will find it harder this time round to pass on higher reinsurance costs to customers whose finances have been affected by the current recession.

The credit ratings agency’s assessment says insurers’ earnings are set to weaken further in the coming months due to the tough economic climate.

Reinsurance prices for the industry have increased significantly because of heavy losses from last summer’s catastrophic bushfire season and other natural disasters, Fitch says.

Figures from the Insurance Council of Australia put insured losses from the 2019-20 natural disaster season at nearly $6 billion – the worst on record.

“The reinsurance cost for the non-life insurers has gone up given the recent catastrophe losses,” Associate Director Kanishka de Silva told insuranceNEWS.com.au. “So what they have been doing is trying to reprice their portfolios in order to pass on the higher cost.

“That was the case even last year, but given the current weaker economic conditions we are expecting the repricing to be quite challenging.”

He says “the affordability side of things is something you have to look at” given the state of the economy.

Fitch says top-line pressure in the form of weak premium growth and sluggish investment revenue will constrain earnings in the short to medium term.

While the agency does not provide an earnings forecast, its analysis concludes Australia’s economic outlook does not bode well for personal and commercial lines insurers.

“What we are expecting is basically for it to continue to be weak,” Mr de Silva told insuranceNEWS.com.au. “The economic condition is one of the key factors.”

Fitch expects claims from the pandemic to be manageable given the industry’s low exposure, as Australian insurers’ portfolios are dominated by home and motor business.

However, there is a chance that business interruption claims may be booked, pending the outcome of a test case before the NSW Court of Appeal, Fitch says. The court has adjourned to consider its decision after a hearing on October 2.