Cost of disaster cover 'peaks'
After a spate of bushfires, floods and earthquakes in Australia and New Zealand in recent years, the price of reinsurance has risen significantly for companies such as IAG and Suncorp, leading to sharp rises in premiums.
But in a sign pressure on premiums could be easing, Swiss Re says the higher prices have attracted billions of dollars to the reinsurance market in the Asia-Pacific region.
The influx of capital has increased the supply of reinsurance, which is expected to cause costs to stay unchanged or fall in years to come.
"In an environment attracting a lot of additional capital I think it's fair that pricing will be flat to down over the next couple of years," Swiss Re's head of property and specialty, Edouard Schmid, said on Tuesday.
"My hope is always that the whole system gets to a more, let's say, stable basis rather than the ups and downs we see now."
Mr Schmid made the comments at an IAG briefing on its New Zealand business, which has passed on a doubling in reinsurance costs to its customers since 2009.
Also represented at the briefing, global reinsurance broker Guy Carpenter said prices in Australia's and New Zealand's reinsurance markets were now above the global average.
Company vice-chairman David Priebe said the price increases had attracted strong flows from institutional investors, and this was having a "profound impact" on the supply of reinsurance.
Global reinsurance prices had moderated in April, he said. "The pricing now is at a level where it has re-energised the market to be here to support it."
All the same, big insurers IAG and Suncorp are seeking to push through price rises of up to 10 per cent on car and home insurance.
IAG, the group behind the NRMA, RACV and CGU brands, has said it expected to increase the cost of home and car insurance by 5 to 10 per cent over the next 12 to 18 months.
The main reason is the rising cost of meeting claims, such as the cost of paying builders for repairs.
Frequently Asked Questions about this Article…
Recent spates of bushfires, floods and earthquakes in Australia and New Zealand pushed up the price of reinsurance, increasing insurers' costs. Big insurers such as IAG and Suncorp have been passing those higher reinsurance and claims costs — for example paying builders to repair homes — on to customers, driving premium rises.
According to Swiss Re, the cost of protecting Australian underwriters against natural disasters has peaked and may fall or stay flat in the coming years, as higher reinsurance prices have attracted significant new capital to the Asia-Pacific reinsurance market.
Higher reinsurance prices have attracted billions from institutional investors, increasing the supply of reinsurance. That added capital is expected to keep costs flat or push them down, and global reinsurance pricing even moderated in April, according to the article.
If reinsurance costs moderate, insurers could see relief in claims costs which may ease margin pressure. Conversely, when reinsurance costs rise, companies like IAG and Suncorp have sought to raise premiums (up to about 10%), which can affect sales, customer retention and future profitability — all factors investors watch.
Yes. The global reinsurance broker Guy Carpenter said prices in Australia's and New Zealand's reinsurance markets were now above the global average, reflecting recent disaster-related losses and regional risk.
The article states both IAG and Suncorp are seeking to push through price rises of up to 10% on car and home insurance. IAG — the group behind NRMA, RACV and CGU brands — said it expected to increase home and car insurance costs by about 5% to 10% over the next 12 to 18 months.
Swiss Re’s head of property and specialty, Edouard Schmid, said pricing is likely to be flat to down over the next couple of years as more capital enters the market. A company vice‑chairman, David Priebe, noted that price increases had attracted strong institutional flows that are profoundly increasing reinsurance supply. Guy Carpenter also commented that ANZ prices are above the global average.
Investors should monitor reinsurance pricing trends (whether costs stay high, flatten or fall), capital inflows from institutional investors, insurers’ announced premium increases, and claims-cost pressures (for example repair costs). Those factors influence insurers’ margins and the outlook for shares in companies like IAG and Suncorp.
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