The Australian insurance sector should maintain a strong credit profile and earnings this year, despite pressure from falling interest rates, according to Fitch Ratings – which has given the sector a stable outlook.

“The recent operating performance of the… sector has been robust in spite of volatile investment markets, falling interest rates and an extended period of above-average losses from natural catastrophes,” Fitch Australian and New Zealand Financial Institutions Team Director John Birch said.

“Capital ratios have remained stable, reinsurance capacity for the non-life sector remains available and insurers’ investment portfolios continue to demonstrate a conservative bias.”

Fitch says profits will depend on how well insurers offset lower investment returns with stronger underwriting results or cost efficiencies.

Reinsurers’ appetite for Australian property catastrophe risk remains strong, the agency says.

Fitch made the predictions in December, before the recent spate of bushfires and floods.

In New Zealand, the sector should benefit from a solid earnings outlook and strengthening regulatory environment, it says.

“The recent earnings performance of the NZ insurance sector has been mixed given the impact of the Christchurch earthquakes,” Mr Birch said. “However, Fitch expects profitability in 2013 to be solid.”

Although reinsurance costs have risen since the earthquakes, property portfolios have been re-priced to offset this and reinsurance capacity for New Zealand quake risk remains available, according to Fitch.

Conservative investment portfolios support insurers’ credit profiles, but falling interest rates will affect their returns, the agency says.