Impacts from elevated catastrophe losses, claims inflation and reinsurance cost increases have reduced for Australian property and casualty insurers, S&P Global Ratings says.

“We believe the acuter pressures that P&C insurers have experienced in recent years, especially during 2021 and 2022, have begun to ease over the past year or so,” associate director Julian Nikakis told a webinar last week.

“As a result, we believe the material premium rate increases that insurers have made to combat these pressures will begin to reduce, leading to slower premium growth across the sector in the next one to two years.”

Earnings are expected to remain sound, with underlying return on equity to stabilise at about 12%-13% as insurers benefit from better risk-based pricing, efficiency initiatives and reinsurance arrangements, with results also supported by investment income as yields remain high.

S&P sees some ongoing operating expense pressures, mainly from technology and cyber investments, plus regulatory costs, while reinsurance remains a “watching brief”.

Mr Nikakis says despite the relatively optimistic outlook, earnings are more exposed to catastrophe losses now than in the past, given higher rebuild and repair costs, increased values and rising population densities, particularly along Australia’s eastern coast.

Insurance Council of Australia data shows the number of declared catastrophes in the 10 years to the end of 2023 was down almost 25% from the previous decade, but the size of the losses almost doubled.

“We estimate that reinsurance costs for Australian P&C insurers have risen by about 44% over the past seven years, and that is in no small part due to the higher catastrophe losses [of] primary insurers over this period, and higher claims and reinsurance costs will ultimately be passed onto consumers through higher premiums,” Mr Nikakis said.

The webinar followed the release of an S&P report titled Australian Insurance Sector Trends: A Return to Underwriting Fundamentals, which also includes the life, health and mortgage sectors.

S&P has stable outlooks on 79% of the Australian insurers it rates and expects the creditworthiness of companies to remain strong for at least the next 12-18 months.