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Fitch forecasts stable year for industry

Next year’s outlook for the Australian insurance sector remains stable, according to Fitch.

The ratings agency says insurers are supported by strong capital positions, conservative investments and robust earnings.

“Capital ratios are very high and Australian insurers’ investment portfolios are some of the most conservative in the world,” analyst John Birch told insuranceNEWS.com.au.

However, an economic downturn or large natural catastrophe losses could hit the sector’s credit profile.

Fitch says Australia’s economic performance is robust compared with other developed nations but it has weakened, with unemployment at a 12-year high of 6.3% at the end of last month. Constrained household budgets could affect insurance affordability, and rising unemployment affects workers’ compensation and income protection.

A sustained increase in extreme natural catastrophe losses could reduce access to reinsurance and lead to higher net retentions and exposures.

Fitch expects insurers’ good earnings to continue into next year, despite increased competition putting downward pressure on rates and top-line growth.

“This is part of the rate cycle,” Mr Birch said. “After large natural catastrophes, rates go up. Then competition increases on the back of good profits, resulting in more aggressive pricing.

“We are at the stage now where we are starting to see rates fall off, and we are seeing that in growth as well.”