New Zealand general insurance premium is likely to achieve a “solid” 8% growth this calendar year, S&P Global Ratings said today in an update.

S&P says the 8% projection compares with a 7% increase last year, and should cover claims pressure from higher natural hazard losses and claims inflation.

The rating agency also predicts the industry should be able to maintain strong operating performance over the next two to three years, keeping its combined ratio in the 87-90% range during this period.

S&P says the combined ratio deteriorated slightly to 88.3% in the year to September 30 2021 from 85.1% the prior period. It says the cost of natural hazard losses, especially from floods, has crept up over the past two years.

The rating agency also expects claims inflation to remain high on the back of pandemic disruptions, the Russia-Ukraine war, and global supply chain issues, all of which have ramped up the cost of repairs and replacement costs for everything from motor parts to building materials.

Higher interest rates are also taking their toll on bond values and mark-to-market investment returns for insurers, S&P says.

“However, the resultant boost to profit from lower claims reserves for duration matched portfolios partially offsets this.”

The S&P update also flags the growing climate risk facing the country, after insurance losses from natural hazards increased by almost 60% over the past two years, especially from flooding.

“This aligns with recent experience in Australia, where even though the frequency of events has not increased longer-term, the recent La Nina weather cycle has markedly increased flood and storm events over the past two years,” S&P says.

“These events are costly to insurers and the broader global reinsurance market, as well as government for infrastructure losses, industry and agriculture for lost production, and the community for social disruption and rising insurance costs.”