Wounded insurers squeeze business

By KEVIN TAYLOR

New Zealand companies are being hit hard by insurance premium rises - some reportedly up to 50 per cent - and more bad news may be on the way.

The rises come after increases in the premiums New Zealand insurance companies pay their overseas reinsurance backers.

The reinsurance industry was badly hit by the September 11 terrorist attacks in the US, which led to the single biggest insurance loss in history.

The attacks exacerbated an already weak reinsurance sector dealing with poor underwriting results and large claims from weather-related disasters.

In New Zealand some commercial insurance rates have risen in recent months and others are expected to increase this year.

However, domestic policy premiums are not being greatly affected.

The chief executive of the Employers and Manufacturers Association northern branch, Alasdair Thompson, said yesterday that companies were already being hit by huge increases in their commercial premiums.

He had heard of rises around the 50 per cent mark.

The same thing happened last winter when businesses were hit by big power price rises during the electricity crisis.

"It's the old story. Businesses are the easy ones to hit," Mr Thompson said.

"With competition nowadays being what it is, recovering cost increases is extremely difficult.

"What can we do about it? I don't know."

New Zealand Insurance director of marketing and underwriting, Karl Armstrong, said reinsurance premium rises had had a significant flow-on impact on commercial rates in New Zealand.

Terrorism had been excluded from insurance cover here, as it had in most of the rest of the world.

NZI commercial premiums had gone up on average 20 to 30 per cent in the last few months, with some rises hitting 40 per cent.

Mr Armstrong said similar premium hikes were happening across the industry.

The main policies affected were commercial property, liability, business interruption and earthquake.

He would not reveal what increase NZI had faced in its reinsurance premiums.

Royal & SunAlliance Insurance managing director Roger Bell said the company expected substantial increases in its reinsurance costs.

Details had not yet been provided to it, he said.

But in the meantime premiums would rise - particularly for commercial risks.

"The amount of increase will depend on the individual circumstances of each risk," he said.

%The bulk of Royal & SunAlliance's business is in commercial insurance.

%The impact of higher reinsurance costs is yet to be felt on State customers, however.

Chief executive David Smith said yesterday that its reinsurance did not come up for renewal until July 1 and the impact would not be known until after then.

But he expects reinsurance rates will rise.

He said State covered smaller-sized commercial enterprises only.

Since July last year, policyholders have had increases of roughly 5 per cent in their premiums, which had reflected the cost of claims, not reinsurance increases.

Predictions of premium hikes in the wake of the terrorist attacks were made in late September by the Insurance Council of New Zealand.

Chief executive Chris Ryan said then that premium rises of 100 per cent or more were being predicted.

Businesses were also likely to face more exemptions and would need to start carrying more of the risk themselves.

Mr Ryan could not be contacted yesterday for comment.

AMI, which covers only domestic insurance, is also expecting its reinsurance costs to rise.

But, like State, its reinsurance is not up for renewal until mid-year.

Chief executive John Balmforth said AMI expected that its costs would rise and that would be reflected in premiums.

However, Mr Balmforth did not expect that the impact would be great.