Insurers Push Up Premiums

The Age

Monday January 5, 2009

By ERIC JOHNSTON

THE nation's insurers are pushing through increases in car and home premiums as part of efforts to replenish capital reserves, after a series of big pay-outs over the past year linked to severe storms.

But attempts to secure price rises across insurance products sold to businesses, such as liability and big-ticket property insurance, are proving to be tougher, with competition in the market remaining intense - even as some firms with headquarters offshore are believed to have wound back exposure to the local market.

Moves on pricing come as local insurers face another headache, with many expected to make heavy write-downs on the value of their investment portfolios after being squeezed by turbulent stockmarkets.

An analysis by Deutsche Bank estimated that falling equities and widening credit spreads on holdings of bonds could wipe more than 30per cent from Insurance Australia Group's earnings this year and some 9per cent from Suncorp Metway.

The combined profits for Australia's insurers fell 20per cent last year to $3.2billion. The industry was hit with about $1.2billion in claims and payouts - more than double the previous year - after a series of storms, mostly in the outskirts of Sydney and in south-east Queensland.

Given the current valuation of investment portfolios, Deutsche Bank's James Coghill said insurers were "adequately" - although not excessively - capitalised.

With many businesses in the midst of annual pricing talks with insurers, signs are emerging that the deep discounting of recent years across commercial lines may have finally come to an end.

"The premiums in Australia are increasing - they're increasing in both personal and commercial," Suncorp chief executive John Mulcahy told BusinessDay.

Premium increases in personal insurance were running at a faster rate than commercial insurance, for which rate rises were confined to a number of lines, Mr Mulcahy said, declining to be specific.

Suncorp, which operates brands such as GIO and Promina, is the nation's second-largest local underwriter behind Insurance Australia Group, which sells NRMA and RACV insurance products.

Analysts and insurance brokers predict commercial insurance rates - while remaining soft - could come in flat or only slightly up over the next year.

But this will be a significant win for insurers that have experienced years of deep discounting. Lines such as liability insurance - often the biggest insurance expense for most businesses - have fallen by as much as 10per cent in the past two years. Commercial property insurance has fallen by as much as 8per cent.

Local players have blamed international insurers trying to grow market share for leading discounting in recent years. Yet local executives are reporting that competition is subsiding, as some players redeploy capital in their home market.

By contrast, further price gains are expected in personal insurance lines, which have already made low single-digit percentage-point gains in each of the past two years.

Analysts and insurance brokers are tipping insurers could secure as much as a 5per cent increase on house and car premiums this year.

The bulk of gains have come about since Suncorp's $7.9billion acquisition of Promina in 2007. Prior to that transaction, Promina - which at the time owned brands such as AAMI and Australian Pensioners Insurance Agency - was seen as leading discounting in the car and home insurance market.

"By eliminating an aggressive competitor, the industry is taking on a duopoly structure," one analyst said. "And neither player sees any point in getting involved in a damaging pricing war at this point in the cycle."

© 2009 The Age

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