Cyclone Gabrielle to impact New Zealand property insurers’ profitability

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Property insurers in New Zealand will see a severe impact on their profitability due to the massive damage caused by Cyclone Gabrielle and the Auckland floods, with insured losses expected to cost over $1bn, according to data and analytics company GlobalData.

Source: AP“The preliminary estimate of economic loss due to the current catastrophic events is expected to exceed $10 billion; however, it is too soon to estimate the extent of the insured losses,” said Chandini Sharma, Insurance Analyst at GlobalData.

Sharma highlighted: “Insurance claims from Auckland floods are expected to reach NZ$1 billion ($702.8 million), for which more than 40,000 claims have already been registered as of February 14, according to the Insurance Council of New Zealand (ICNZ).”

“The insured losses from the cyclone and floods are expected to cost insurers more than $1 billion. The losses incurred so far in the current year are expected to surpass the total of all weather-related claims in 2022, which was the highest to date.”

Described as the most significant weather event to hit the New Zealand in this century so far, Cyclone Gabrielle caused extensive damage to property, businesses, and infrastructure.

It prompted the government to declare a national state of emergency for the third time in history on 14 February 2023. The country also faced devastating floods in Auckland from 27 January to 02 February this year, followed by a massive earthquake.

According to GlobalData’s Global Insurance Database, property insurance gross written premiums (GWP) stood at NZD5.2 billion ($7.4 billion) in 2021 and accounted for 42% share of New Zealand’s general insurance GWP.

The loss ratio for the property insurance line increased from 59.4% in 2020 to 74.0% in 2021 due to higher natural catastrophic (NatCat) claims and is expected to jump significantly in FY2022-23 to reach 156.5%.

Earthquakes, floods, and wildfires are major drivers of the New Zealand property insurance sector, the sixth largest market in the Asia-Pacific (APAC) region.

Sharma noted that, even though no damage has been reported from the 6.1 earthquake that struck the north-western part of Wellington on 15 February, it should work as a reminder for insurance stakeholders that the island nation is prone to earthquakes.

As businesses continue to recover from the effects of the floods, the recent cyclone will have a negative impact on the profitability of property insurers. Property insurers in New Zealand are expected to incur underwriting losses in FY2022-23, as the expense ratio for general insurance lines averaged around 27%.

Sharma concluded: “Massive losses from wildfires and other catastrophe-linked insurance lines have led to a double-digit growth in premium prices for New Zealand insurers in the last few years.

“The current NatCat events are expected to further increase property premiums leading to GWP growth during 2023-26. However, insurers’ profitability is expected to remain severely challenged in the coming years due to increased frequency of weather events and rising inflation that will lead to higher claims pay-out.”

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