Property & Casualty (P&C) insurance premiums in New Zealand are likely to bounce back to grow 6% next year and in 2022, S&P says.

The ratings agency says the market is likely to achieve 2-3% premium growth this year despite the COVID-19 pandemic, with a return on equity (ROE) of about 8% and a net combined operating ratio of around 90%-95%, with rate increases supporting modest growth.

“We expect New Zealand's P&C insurance segment will continue to post solid underlying results over the next couple of years, although results in 2020 will likely be subdued due to the COVID-19 lockdown and resultant economic slowdown.”

Gross written premium has grown by an average of 8.5% annually over the past three years, and S&P expects similar growth over the medium term.

S&P rates New Zealand's insurance sector risk as “intermediate”, the third lowest on its scale and matching Japan, Korean, Taiwan, the UK and US.

“We expect the impacts of the COVID-19 pandemic and the economic downturn to be relatively minor for New Zealand's P&C insurers, who have limited exposures to the most impacted lines of business,” S&P says.

Any increase in claims as a result of the pandemic should be largely offset by a reduction in claims in the large lines of home and motor. New Zealand insurers enjoyed a significant decrease in motor claims frequency during the national lockdown.

Investment losses will have the largest impact on New Zealand P&C insurers' earnings this year, S&P says, though some of these unrealised losses should be wound back before the end of the year.

Measures taken by insurers to assist customers, such as premium deferrals or rebates, will impact the sector's combined ratio for 2020 but also increase customer sentiment and aid retentions.

The ratings agency assumes a 5% contraction in New Zealand’s real GDP in 2020, with unemployment to increase to 5.8%, recovering to GDP growth of 6% in 2021.

S&P has a 'AA' sovereign rating on New Zealand with a positive outlook.