A new report from A.M. Best examines New Zealand’s non-life insurance market, which it describes as being “in a state of transformation as it grapples with prolonged earthquake activity in addition to regulatory developments.”
The report, “New Zealand’s Insurance Market on Cusp of Transformation,” concludes that the country’s insurers “face a period of uncertainty as an estimated 8,000 aftershocks and earthquakes have occurred in the past year.”
Chi-Yeung Lok, associate financial analyst, explained: “Even where reinsurance has been effective in absorbing earthquake claims, some non-life market participants still need to deal with the impact of accumulated loss retentions on their net assets as well as the large amount of reinsurance recoverables.”
Best also noted that its report “examines the availability of non-life insurance and reinsurance capacity in the wake of the earthquakes and the restrictions imposed on cover, which are causing some companies to consider alternative risk transfer, such as the use of captives. It states that in addition to the recent natural catastrophes, regulatory demands are contributing to the remolding of the New Zealand non-life insurance industry.”
Yvette Essen, director of industry research – Europe & emerging markets, who authored the report noted: “The continued rollout of the Insurance (Prudential Supervision) Act 2010 is expected to lead to significant changes in the market. Licensing rules, minimum capital requirements and higher catastrophe risk capital charges are expected to contribute to consolidation.”
The report adds while the new regulation is not intended to directly fuel industry consolidation, this consequence is inevitable. Some insurers are expected to merge, while others could exit the industry.
The report will be unveiled tomorrow at “The Shifting Landscape” Insurance Council of New Zealand (ICNZ) conference in Auckland. A.M. Best is a gold sponsor for the conference.
Source: A.M. Best
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