New Zealand insurers are resilient enough to remain profitable despite increased competition, weak economic growth and soft prices, according to Standard and Poor’s (S&P).

General insurers’ revenue growth will remain subdued in the short term but they are still capable of achieving a net combined operating ratio of around 95% this year, the ratings agency says in a new report.

“This reflects our opinion that the sector will maintain strong underwriting and risk management discipline [and] we expect reasonable underwriting profits over the coming year,” it says. 

Gross written premium was flat in the year to September 2015 and is expected to grow by a mild 2% this year.

Soft prices remain a drag on earnings, caused by a global capital glut that shows no signs of abating. Weak growth is also expected, with the local economy predicted to expand 2.3% this year, down from 3% in recent years.

New players such as Berkshire Hathaway Specialty Insurance and Ironshore have added to the pressure facing existing players in the New Zealand market, but their arrival underlines the market’s long-term potential.

“It is testament to the environment [in the New Zealand market] that new entrants are looking for new opportunities,” Senior Director Financial Services Group Mark Legge told insuranceNEWS.com.au.

“In the short-term, it does add to the competitive tensions.”

Prices for commercial property-related lines are back to levels seen before the 2010 and 2011 Canterbury earthquake, and are not expected to recover in the interim.

Personal lines is performing slightly better and modest growth is likely in the short term.

Plans by the Reserve Bank of New Zealand to review the Insurance Prudential Supervision Act this year – its first since the framework was established five years ago – are not likely to adversely impact the industry.

“We continue to see the framework as supportive of the sector,” S&P says. “The regulatory regime… has performed in line with our expectation that it would gradually build its capabilities.”

S&P says the review will focus on qualitative issues, such as ways to cut regulatory costs and improve general insurers’ flexibility in responding to changes in circumstances.