Property and casualty excess reinsurance rates are likely to rise further, according to S&P Global Ratings latest report.
The rating agency has recently assessed the country’s insurance sector as low risk, incorporating recent headwinds across catastrophes, claims inflations and reinsurance cost, among others.
In recent years, the country has been seeing a decline in the frequency of catastrophes. But the intensity and damage bill has nearly doubled from a decade ago.
For example, from 31 December 2012 to 31 March 2022, Australia had about 40 declared catastrophes with original losses of about A$24 billion.
This compares with about 50 catastrophes in the prior ten years, but the original losses were almost half at less than A$13 billion (inflation adjusted).
Yet, the impact of these catastrophes, according to the report, has been tempered by sound earnings from other lines. Higher premium rates were passed on to policyholders, and excess claims were shared with reinsurers.
The report notes that Australia’s P/C sector is a mature one, well developed and advanced in terms of pricing and risk controls.
The numbers of licenced P/C insurers has grown over the years, with global P/C insurers instilling a highly competitive operating environment supported by global reinsurers.
In addition to this, local insurers have been particularly effective in managing large claims and exposure to natural peril and catastrophe events through reinsurance, the report noted.
Because of this, S&P expects heightened pressure on reinsurance rates and cover over the next three years.
S&P said: “We expect primary P/C insurers to experience continued upward pressure on reinsurance prices for property lines in particular, and across aggregate excess of loss protection covers. Higher reinsurance prices are seen in markets other than Australia too.”