New Zealand life and mortgage insurers are likely to fare better than their Australian counterparts next year as income protection claims bite across the Tasman.
Global ratings agency Standard and Poor's has put the life and mortgage insurance sectors in Australia onto a 'negative' outlook, as unemployment rates deliver higher claims for mortgage insurance and with life insurers likely to be hit by pending income protection claims.
By contrast, New Zealand life insurers should be less affected by income protection while health insurers benefit from fewer Kiwis opting for elective medical procedures.
S&P said the main benefits of a "more severe lockdown" in New Zealand will accrue to property and casualty insurance companies, as motor and home claims show material decreases.
In its latest outlook for trans-Tasman insurers, S&P Global Ratings said insurers across both countries are "well placed" to absorb the effects of the covid-19 pandemic, but current financial year earnings are likely to be hit.
Credit analyst Julian Nikakis said the pandemic had created a "new suite of earnings pressures" for insurers, following significant natural catastrophe losses for property and casualty insurers over the summer.
These include losses of more than A$5 billion from Australian bushfires and storms over the summer while New Zealand insurers were affected to a lesser degree by weather-related payouts of about $150 million over the same period.
S&P expects covid-19 to slow top-line premium growth, elevating claims in some lines of business and declines in investment portfolio market values.
Nikakis said while financial assistance measures such as premium deferral periods or refunds may improve consumer sentiment and retentions over the medium term, they will also lower earnings this financial year or later "depending on the insurer."
S&P has adjusted its outlook on four insurers most exposed to the covid-19 downturn, moving Westpac Lenders Mortgage Insurance, Westpac Life and Genworth Financial Mortgage from 'stable' to 'negative' and Challenger Life from 'positive' to 'stable'.
The agency said premium pressure could also increase in the third and fourth quarters as government stimulus measures, across Australia's 'job keeper' and New Zealand's 'wage subsidy' payments, subside.
"However, we would expect aggregate premiums to progressively return to pre-covid levels from 2021."
Nikakis said while he expected a "moderate increase" in claims for some lines of business, the reduction in personal lines across home and contents and motor vehicle portfolios, will offset that to some degree.
"Key lines such as event cancellation, trade credit and commercial liability are likely to see increased claims, however we note that these are much smaller lines for Australian insurers, and even smaller for New Zealand insurers."
There also remains the potential for higher cost of claims reflecting covid-19 distancing costs and higher imported inflation costs, the report noted.
The agency said property and casualty lines will likely see top-line contraction over the year on the back of subdued economic conditions, as fewer homes and cars are sold.
New home sales in New Zealand were down about 22 percent for March and car sales halved in April. While new residential building consents were down only 6.5 percent in April - with the market playing "catch up" after lockdown - ASB economist Jane Turner expects both residential and commercial building demand to slump later this year as recession takes hold.
S&P also expects property and casualty insurers to be impacted across calendar 2020 as a result of the financial support offered for individuals and small and midsize enterprises through premium deferrals, refunds and similar measures.
S&P expects the local life insurance market to experience a decline in premiums over the next one-to-two years, with fewer new sales and an increase in lapses resulting from financial pressure on consumers.
"These conditions supplement our existing negative outlook on the Australian life sector, while the New Zealand life sector remains stable."
S&P said the low mortality rate in Australia and New Zealand to date from the covid-19 pandemic, including a low number of deaths to infections compared with other countries, meant it was unlikely there would be a noticeable increase in claims for local life insurers, "barring a significant worsening of the outbreak."
The report also noted that older age groups most susceptible to covid-19 "usually have limited or no life insurance cover in these markets."
S&P expects claims for private health insurers to "decline substantially" for the duration of the outbreak as hospitals defer elective surgeries and patients choose not to undertake certain procedures.
"As people continue to practice social distancing, we also anticipate that there will be a decline in customers using ancillary healthcare services, further lowering claims during this period."
Nikakis said those deferrals may see some health insurers offer refunds to policyholders, "although we do not believe they would do so to the extent that it eats into profits."
The agency does not expect a significant spike in claims after restrictions are eased in light of the supply constraint on healthcare services and professionals.