Strapped Insurers Increase Premiums

Sydney Morning Herald

Monday January 5, 2009

Eric Johnston

THE nation's insurers are pushing through increases in car and home premiums as part of efforts to replenish capital reserves following a series of large payouts over the past year linked to a string of severe storms.

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

Moves on pricing come as local insurers face an additional headache, with many expected to make heavy writedowns on their investment portfolios due to turbulent sharemarkets.

Deutsche Bank estimates falling equities, and widening credit spreads on holdings of bonds could wipe more than 30 per cent from Insurance Australia Group's earnings this year and about 9 per cent from Suncorp Metway's.

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

A Deutsche Bank analyst, James Coghill, said insurers were adequately capitalised, and not excessively.

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 ended.

"The premiums in Australia are increasing . . . in both personal and commercial," said the chief executive of Suncorp, John Mulcahy. Premium increases in personal insurance were running at a faster rate than commercial insurance. The latter's rate rises were confined to a number of lines, he said.

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

However, it would be a significant win for insurers. Lines such as liability insurance have fallen as much as 10 per cent in the past two years, and commercial property insurance has fallen as much as 8 per cent.

© 2009 Sydney Morning Herald

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