New Zealanders are likely to favour local insurers in the aftermath of the Canterbury earthquakes, according to a report by ratings agency Standard & Poor’s (S&P).

Credit analyst Mark Legge says “there will never be plain sailing” for the country’s insurance industry because of its exposure to “inherent climatic risk”, but size and reputation will ensure local market leaders are well placed for profitable growth.

“As we see it, large insurers with strong parentage and group reinsurance arrangements are best placed to thrive in New Zealand’s general insurance market,” he said. “They have encouraging earnings outlooks, ample reinsurance capacity and capital access for growth.”

With the Canterbury quakes and a period of consolidation behind them, major insurers are enjoying the benefits of scale, reputation and pricing power, S&P says.

Mr Legge believes they are unlikely to be troubled by foreign competitors.

“The middle market of European and US-owned insurers have either not targeted or struggled to capture more than a niche [in New Zealand], and traction of new entrants and the threat of aggregators are not likely to upset the market,” he said.

Factors favouring local insurers include the entrenchment of market leaders, the high degree of bank and broker distribution and consumer demand for insurers to have financial strength and surety of capacity following the recent quakes.

Demand for insurance products should be buoyed by moderate economic growth over the medium term, with S&P forecasting GDP rises of 2.6% next year and 2.5% in 2016.

Mr Legge expects post-quake consumer awareness of the importance of adequate cover will also drive demand.