Excess capacity, intense competition, inadequate premium rates and a high level of claims resulted in a very poor earnings performance in the New Zealand nonlife insurance market in 1999. So said Ian Thompson, Standard & Poor’s Managing Director, at the launch of the Australian and New Zealand Life Insurance Digest Tuesday.
The comments came as no surprise as Standard & Poor’s had anticipated several years of compounding rate cuts pushed combined ratios over the 100 percent threshold into underwriting losses. While the New Zealand industry’s expense ratio has remained relatively fixed at over 30 percent, the loss ratio has gradually climbed to more than 70 percent in 1999 in many classes of business.
The need to provide adequate returns to shareholders has provided the impetus for premium rate increases, and coupled with market forces, will determine the degree of increases achievable. S&P expects that given the significant fall in premium rates in recent years, multiple increases will be needed to fully restore adequate profitability.
The outlook is for improved industry profitability, supported by continued upward movement in commercial lines premiums and consequent improved combined ratios. In light of the lagged effect of rate increases on bottom-line profit and the staggered nature of implementation by New Zealand’s general insurers, a full earnings recovery is not expected until late in 2000.
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