Reinsurers face a new normal

It is great news that New Zealand has remained free of a catastrophic loss in the past twelve months. The Insurance Council of New Zealand (ICNZ) reported that the estimated insurance losses from weather-related events in New Zealand last year cost the insurance market NZ$4.1 billion. Many claims related to home insurance and contents insurance but commercial insurance claims were also substantial, as illustrated in the table.

Claims costs from the two major weather events in 2023

Data from the Insurance Council of New Zealand shows the total New Zealand insurance market net premium income for home and contents polices was $1.5 billion at 2022 year end. In contrast, insurers faced a total of $1.9 billion in home and contents claims from last year’s two extreme weather events alone.

The cost of reinsurance is a major component of insurance pricing. Reinsurers insure insurance companies and help them manage risks by absorbing some of their losses. If reinsurers lift their prices, retail insurance prices tend to follow suit.

Global events, such as catastrophic weather events, can significantly impact the reinsurance market both as a whole and at a local level. The outcome of the Atlantic USA hurricane season is a key market influencer. While the 2023 season was quiet, which was good news for reinsurer and insurer results, there was more than USD100 billion of insured property catastrophe losses last year that were generated from disasters in USA, France, Italy and Turkey in particular.

Reinsurers are facing a new normal, as insured losses topped USD100 billion for the fourth consecutive year and for the sixth year out of the last seven.

Stability returns to reinsurer market

The reinsurance renewal market in 2023 was cited as being one of the most challenging on record as reinsurers reduced capacity and changed coverage, attachment and pricing for catastrophe insurance. It was deemed as a major reinsurance reset that reflected the impact of climate change.

Reassuringly, relative stability has been the hallmark of the January 2024 renewal season. This is good news for insurance buyers as it has relieved some price pressure for local insurance companies in New Zealand. It does not mean, however, that insurance premiums will suddenly reduce. We expect the New Zealand insurance market will seek premium increases across most types of insurance for most, if not all of 2024.

For sound, well-managed risks that do not have a high number of historical claims, premium increases are likely to be lower than experienced in 2023. However, insurers did not apply their full price adjustments last year due to the timing of individual customer renewals throughout the year.

What this means for our clients

We strongly recommend our clients to approach the insurance market early and with a full underwriting submission at renewal. A by-product of 2023 losses and reinsurance changes is insurance companies’ greater selectivity about which risks they accept and the terms that they provide.