Facing up to the challenges of deteriorating underwriting environment and reduced investment earnings

The historically profitable New Zealand market has been hit by what one observer describes as a “perfect storm”. Over the last two years there has been an upsurge in severe weather events and an increase in the number of total loss fire claims affecting the household and food processing sectors. These factors have helped push the market’s combined ratio up from 93.3% in 2006 to 102.8% in 2008. New Zealand used to have the highest interest rates in the developed world but as a result of the economic recession, the official cash rate has been reduced six times in the last 12 months. Insurers’ investment earnings have therefore been dramatically reduced. However, the domestic household market, which has the most chronic loss problems, has been hardening for the last three years even though rates are widely perceived to be increasing so slowly that only the most agile and best prepared insurers are able to benefit from this trend

The New Zealand market is divided between public and private sector insurance operations. The public sector, which accounted for 53.8% of premium income in 2007-08, comprises the Earthquake Commission (EQC) and the Accident Compensation Corporation (ACC). The private sector comprises 121 non-life insurers, the majority of which are inactive i.e. dormant, captive or only active in specialised areas such as private medical insurance.