New Zealand insurers are enjoying record profitability but Canterbury earthquake claims still pose a risk to their earnings, according to a report by Credit Suisse.

Insurance Analyst Andrew Adams says higher insurance margins are becoming “the new norm” because insurers have passed on increased costs to policyholders following the quakes.

But while many thought they had adequate reinsurance for the earthquakes, “increases in estimates are starting to test the upper limits of reinsurance programs”.

Claims continue to be finalised but announcements by IAG in December that it was increasing its expected claims cost and by Tower last month that it has bought more reinsurance for its remaining Canterbury claims show significant earnings risk remains.

It could be another one to two years before most of the claims are settled and there is more certainty on the final cost, Mr Adams told insuranceNEWS.com.au.

“With an event like a NSW hailstorm, there is enough data and knowledge for insurers to quickly put estimates on it, but with something as big and as rare as Canterbury we appreciate it is hard for them to estimate the total,” he said.

The report says the long-awaited review of the state-owned Earthquake Commission “could have the largest impact on the industry, resulting in further policy repricing”.

Recent acquisitions that have increased market concentration should help maintain elevated profit margins in the near term.

New entrants such as Youi, which gained its insurance licence last July, could threaten other players in the longer term.

Mr Adams says IAG has more exposure to the attractive New Zealand market, but in the near term the earthquake claims risk outweighs the longer-term positive exposure.

He prefers Suncorp over QBE and IAG. The Brisbane-based insurer is least exposed to reserving risk because its gross claims estimate was more accurate than other insurers and its reinsurance cover more conservative.

The Reserve Bank of New Zealand estimates final insurance claims from the earthquakes will be $NZ32-$NZ37 billion ($30-$35 billion).

The industry collects about $NZ5 billion ($4.7 billion) premium annually.