Gabrielle and Auckland floods to erode profits of NZ property insurers

Leading data and analytics company GlobalData forecasted a major downturn for New Zealand property insurers this year in the wake of the country’s two recent extreme weather events: the Auckland floods, which devastated the North Island from Jan. 27 to Feb. 2, and the more recent Cyclone Gabrielle, which has been called the most significant weather event to hit New Zealand so far this century.

“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,” GlobalData insurance analyst Chandini Sharma said. “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).”

Sharma noted that the insured losses from the cyclone and floods are expected to cost insurers more than $1 billion. These losses incurred so far in the current year are also expected to surpass the total of all weather related claims last year, which was also noted as the highest to date.

“Double-digit growth in premium prices for NZ insurers in last few years”

Property insurance gross written premiums (GWP) stood at NZ$5.2 billion ($7.4 billion) in 2021 and accounted for a 42% share of New Zealand’s general insurance GWP, according to GlobalData’s Global Insurance Database. Property insurance line loss ratio saw an increase to 74% in 2021 from 59.4% in 2020 due to higher natural catastrophic (NatCat) claims. The ratio is expected to jump significantly for the fiscal year of 2022-23, reaching 156.5%.

Sharma also noted a massive earthquake that shook the north western part of Wellington on Feb. 15, an event fresh off of the aftermath of Cyclone Gabrielle. “Albeit no damage has been reported from the earthquake so far, it reminds insurance stakeholders that the island nation is prone to earthquakes as it sits on an arc of seismic faults around the Pacific Ocean,” Sharma said.

The New Zealand property insurance sector is listed as the sixth largest market in the APAC region, with earthquakes, floods, and wildfires being major drivers. While businesses will see a continued recovery from the effects of the floods, the recent cyclone will have a negative impact on property insurers’ profitability. NZ property insurers are expected to receive underwriting losses in the fiscal year 2022-23 as the expense ratio for general insurance lines averages around 27%.

“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,” Sharma said. “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.”

Noting similar losses for his company, Tower Insurance boss Blair Turnbull recently called for a stop to building homes in flood prone areas and coastlines.

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