HOME and car insurance premiums have risen strongly in the first six months of this year and commercial cover is beginning to emerge from the doldrums of low prices.
But the home and car price increases are unlikely to have made much impact on the 2009 profits of the three major ASX insurers + Insurance Australia Group, Suncorp-Metway and QBE – with the benefits due to flow through into their next financial year.
Price-cutting and attempts to grab market share have plagued the insurance sector in recent years, but the latest rates survey conducted by the analyst Credit Suisse suggests that rises of the past months are being maintained.
Insurers have been able to push through above-inflation rate increases over the past six months in the key areas of motors (33 per cent of the listed sector’s income) home and contents (22 per cent) and compulsory third party (10 per cent).
There are even signs of recovery in the depressed business sector, where a price war and lower premiums have slashed earnings. Rates hardened last month, when companies traditionally renew their insurance cover. This is important for IAG, for example, whose CGU commercial division accounts for 35 per cent of the group’s gross written premium.
Business has picked up even from a few weeks ago, when brokers expected competition between insurers – especially by financially stretched operators such as the giant US company AIG – to keep a lid on prices.
However, market watchers are reluctant to call an end to the long period of weakness for the industry.
Deutsche Bank’s insurance specialists James Coghill and Scott Olsson said in an update published on Friday: “Rates are undoubtedly firming across commercial, but it would be a stretch to describe this as a cyclical upswing to hard market conditions.”
In the personal sector, Credit Suisse says, the most recent household rate rises should help improve the industry’s earnings this financial year, as it takes about 12 months for price rises to flow through to the bottom line. “Overall [the] quality of earnings will likely improve,” said Arjan van Veen, a research analyst, in a note to clients.
This story was found at: http://business.theage.com.au/business/insurers-to-profit-as-premium-rises-stick-20090705-d96g.html
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