Kiwi insurers unscathed by Covid-19, S&P says

New Zealand insurers’ risks have remained stable through 2020 and the sector has mostly been unscathed by the Covid-19 pandemic, S&P Global Ratings says.

Tuesday, August 4th 2020, 9:18AM

It said local health insurers have an intermediate risk and life insurance sectors a low risk.

“Despite the challenges of Covid-19, insurers are supported by the country's stable economy, which has seen domestic business restrictions lifted since June following a swift lockdown to manage the pandemic,” S&P said.

“While international borders are likely to remain closed for some time, we expect domestic activity to support moderate top-line growth in 2020, followed by a strong rebound in 2021. We view the effective management of the pandemic crisis and absence of any second wave to date, with outbreaks observed in neighbouring Australia, as beneficial for New Zealand insurers.

“The credit quality of New Zealand insurers is supported by strong capital buffers and conservative investment policies, with sound reinsurance from highly rated counterparties.”

S&P said the insurers also benefited from the support of strongly rated parent groups.

Insurance ratings in New Zealand range from BBB+ to AA-, with the greatest concentration at the A+ level.

“We expect the largest impact from Covid-19 for New Zealand insurers to be through investment market losses, with asset value declines. We also expect lower investment income due to the low interest rate environment continuing to affect insurers' earnings, more recently illustrated in the first quarter of 2020.”

S&P said insurer profitability was likely to remain positive in 2020 although to be slightly muted compared to previous years.

“We see relatively low impact on the life sector with New Zealand's low mortality rate from Covid-19, although income protection claims may increase with more difficult economic and social conditions. Traditionally these claims have been low in New Zealand with insurers' claims lessened by the benefit of the government's ACC. The health insurance sector is likely to experience a modest short-term positive earnings impact, with lower health insurance claims reflecting the temporary deferral of elective surgery.

“We expect softer economic conditions and the relatively benign claims environment to constrain premium inflation over 2020. However, we view that premium rebates for consumers are likely to dissipate as claims inflation persists and may be aggravated by supply-chain disruptions from the international impact of the pandemic.”

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