Premiums that soared may soon be on way down
One of the world's largest reinsurance companies says the cost of protecting Australian underwriters against the risk of natural disasters has peaked, and may fall over the coming years.
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 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 speaking 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.
The company's vice chairman, David Priebe, said the increase in prices had attracted strong flows from institutional investors including pension funds, and this was having a "profound impact" on the supply of reinsurance. Global reinsurance prices had moderated this month, he said.
"The pricing now is at a level where it has re-energised the market," he said.
All the same, the big insurers IAG and Suncorp are seeking price rises of up to 10 per cent on car and home insurance.
IAG, the group behind the NRMA, RACV and CGU brands, expects to increase premiums on home and car insurance by 5 per cent 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.
IAG is the biggest company in New Zealand's $5 billion general insurance market, with a share of almost 40 per cent.
Chief executive Mike Wilkins said its return on equity in New Zealand was higher than IAG's group-wide target of 15 per cent.