Australia’s general insurance sector has retained its coveted “low-risk” status in Standard & Poor’s (S&P) latest insurance industry and country risk assessment.

But the report also warns that the sector’s response to growing competition is critical.

The sector ranks as one of the lowest-risk markets globally, alongside Canada, France, Germany, Hong Kong and Singapore. 

S&P credit analyst Caroline Strahan says stability will be undermined if continuing competitive pressures result in severe premium discounting.

“It’s something on our radar,” she told insuranceNEWS.com.au. “It’s not something we’re expecting. We expect market pricing to remain rational on the whole.”

S&P retains a positive view of the industry’s profitability outlook.

It considers a return on equity (ROE) of 10% or higher to be a strong performance. Australia’s general insurance sector has a weighted-average ROE of 14.3% for the five years to last year.

Although the top five insurers dominate the market, S&P estimates new retail lines entrants have captured a share of about 4%.

Ms Strahan says aggregators are not an issue, possibly because major brands do not participate in them.

“Consumers tend to be brand-loyal, preferring to remain with established insurers.

“These new entrants have generally competed on price. It remains uncertain as to whether they are picking up higher-risk customers from other insurers.

“I don’t think the larger players would be too worried about that [4% market share]. Given the size of their books there’s always going to be churn.”