AAusustrtraliaalia Insur Insurancance Re Report - Q2 2021 - Fitch Solutions
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Q2 2021
www.fitchsolutions.com
Aus
ustr
tralia
alia
Insur
Insuranc
anceeR
Report
eport
Includes 5-year forecasts to 2025
Report SummaryAustralia Insurance Report | Q2 2021
Contents
Key View............................................................................................................................................................................................ 4
SWOT .................................................................................................................................................................................................. 5
Insurance SWOT............................................................................................................................................................................................................................ 5
Industry Forecast........................................................................................................................................................................... 6
Life Premiums Forecast ............................................................................................................................................................................................................. 6
Non-Life Premiums Forecast.................................................................................................................................................................................................10
Non-Life Sub-Sector Forecast ...............................................................................................................................................................................................14
Industry Risk/Reward Index ....................................................................................................................................................22
Asia Pacific Insurance Risk/Reward Index ........................................................................................................................................................................22
Market Overview..........................................................................................................................................................................24
Life Market Overview.................................................................................................................................................................................................................24
Non-Life Market Overview ......................................................................................................................................................................................................26
Company Profile...........................................................................................................................................................................29
AMP Limited .................................................................................................................................................................................................................................29
ToC
Insurance Australia Group Limited......................................................................................................................................................................................31
QBE Insurance Group................................................................................................................................................................................................................33
Suncorp Group Limited............................................................................................................................................................................................................35
Insurance Methodology.............................................................................................................................................................37
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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
fitchsolutions.com 3Australia Insurance Report | Q2 2021 Key View Key View: The Australian life and non-life insurance sectors will record positive growth in 2021 as the country moves forward from the Covid-19 pandemic. The life insurance sector will see increased demand for cover, which will support steady and stable growth throughout our forecast period. Meanwhile, the non-life insurance segment will be driven by an expansion in the health insurance market as a result of government tax incentives and increased demand following coronavirus. However, insurance providers will continue to struggle with natural catastrophes pushing claims higher, which could result in higher premium prices for customers. HEADLINE INSURANCE FORECASTS (AUSTRALIA 2018-2025) Indicator 2018 2019 2020e 2021f 2022f 2023f 2024f 2025f Gross life premiums written, AUDbn 40.36 30.28 23.77 26.30 27.35 28.58 30.36 31.98 Gross life premiums written, AUD, % y-o-y -3.8 -25.0 -21.5 10.7 4.0 4.5 6.2 5.3 Gross life premiums written, USDbn 30.04 21.04 16.17 18.79 19.68 20.56 21.84 23.01 Gross life premiums written, USD, % y-o-y -6.6 -29.9 -23.2 16.2 4.7 4.5 6.2 5.3 Gross non-life premiums written, AUDbn 65.21 68.11 73.57 76.82 80.59 84.41 88.47 92.92 Gross non-life premiums written, AUD, % y-o-y 4.1 4.5 8.0 4.4 4.9 4.7 4.8 5.0 Gross non-life premiums written, USDbn 48.53 47.34 50.05 54.87 57.98 60.73 63.64 66.85 Gross non-life premiums written, USD, % y-o-y 1.1 -2.4 5.7 9.6 5.7 4.7 4.8 5.0 e/f = Fitch Solutions estimate/forecast. Source: APRA, Fitch Solutions Key Updates And Forecasts Page 1 • Catastrophe provisions have been a key area for insurers this quarter. In December 2020, QBE Insurance said it expected an annual net cash loss of AUD780mn due to higher catastrophe-related costs as well as additional Covid-19 claims. In November, Suncorp announced estimated natural catastrophe losses of between AUD348mn and AUD408mn for the first four months of the financial year. • Meanwhile, IAG finalised its catastrophe reinsurance programme for the 2021 calendar year, maintaining its gross reinsurance protection cover at up to AUD10bn. • Digitalisation remains a key trend in product innovation. In November 2020, IAG launched an artificial intelligence service which can predict whether a motor vehicle is a write off after a car accident. The product has been designed to reduce insurance claims processing times from over three weeks to just a few days. • There have also been some personnel movements at AMP during the quarter; the company appointed former Sunsuper boss, Scott Hartley, as its new chief executive. Meanwhile, in December, head of SuperConcepts and AMP’s managing director of superannuation, retirement and platforms, Lara Bourguignon, left the organisation. • We expect life insurance premiums in 2021 to increase by a significant 10.7% to AUD26.30bn (USD18.79bn). Positive news regarding a vaccination combined with an increased interest in life insurance premiums will help to bolster demand. Over the remainder of our forecast period, we expect growth levels to tail off slightly. We expect an average annual growth rate of 6.1% between 2021 and 2025, with premiums reaching AUD31.98bn (USD23.01bn) by 2025. • We expect strong and stable growth in 2021 in non-life insurance premiums, with an increase of 4.4% to AUD76.82bn (USD54.87bn). Premiums will remain around the mid-single digit range for the remainder of the forecast period. We expect an average annual growth rate of 4.8% between 2021 and 2025, with premiums set to reach AUD92.92bn (USD66.85bn) in 2025. THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research. fitchsolutions.com 4
Australia Insurance Report | Q2 2021
SWOT
Insurance SWOT
SWOT Analysis
• Strong awareness of benefits of both life and non-life insurance products among the potential consumer
market.
• High susceptibility to natural disasters makes insurance coverage a necessity for many businesses and
Strengths
individuals, and is a long-term driver of premiums.
• Australia's well-developed financial services sector provides insurers with opportunities for bancassurance
partnerships and other synergies.
Weaknesses • Slowing immigration is limiting population growth and hence reducing the customer base for some personal
insurance lines over the long term.
• A plethora of well-capitalised local firms makes entry for overseas insurers extremely challenging.
• The autos market is almost entirely import driven, leaving vehicle fleet growth and hence premiums
susceptible to AUD depreciation.
• High incidence of forest fires and other natural disasters also means that claims costs have a tendency to
fluctuate and spike in some years.
Opportunities • The anticipated scale-back of universal healthcare should provide considerable opportunities for health
insurance providers.
• Population ageing should drive long-term demand for life insurance and long-term savings/retirement
products.
Page 2
• A strong export market will support freight transport growth and, therefore, demand for transport insurance.
• Royal Commission into misconduct in the financial services industry will have an impact on wealth
managers, platform operators and some distributors of insurance products.
Threats • Possible continuation of sub-par economic growth through much of the forecast period.
• Health insurers are facing the first signs of public/governmental opposition to premiums inflation.
• High levels of household debt could impact demand for non-essential lines.
• Increased regulatory costs.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
fitchsolutions.com 5Australia Insurance Report | Q2 2021
Industry Forecast
Life Premiums Forecast
Key View: The Australian life insurance market will experience a robust recovery in 2021 as the economic environment improves
and private consumption rebounds. Positive news regarding the availability of a Covid-19 vaccination in mid-2021 and an increased
awareness for life insurance coverage following the pandemic will result in steady and positive growth for premiums throughout our
five-year forecast period. By 2025, we expect density to reach pre-pandemic levels. However, downside risks to growth will remain in
the immediate future as Australia continues to battle a domestic outbreak.
Latest Updates
• We expect life insurance premiums in 2021 to increase by a significant 10.7% to AUD26.3bn (USD18.8bn). Positive news
regarding a vaccination combined with an increased interest in life insurance premiums will help to bolster demand.
• Over the remainder of our forecast period, we expect growth levels to tail off slightly. We expect an average annual growth rate of
6.1% between 2021 and 2025, with premiums reaching AUD31.98bn (USD23.01bn) by 2025.
• Sustainability continues to be a key trend in the Australian life insurance market, with the Australian Prudential Regulation
Authority providing guidance on product features which will drive sustainability. In response, AIA Australia plans to launch a new
sustainable income protection product in 2021. IP CORE will be sold alongside its existing income protection product, Priority
Protection.
Structural Trends
Page 3
Australia is home to the world's fourth largest pool of organised retirement savings in the form of the superannuation funds (super
funds), which have assets of around AUD2trn. The super funds will grow steadily over the coming years. This is because of the
growth in the workforce, owing to net immigration, the general rise in incomes over time and the increase in the superannuation
guarantee levy - the portion of workers' incomes that must be contributed to superannuation and investment earnings. The
implication for this is that the super funds (other than self-managed super funds) will represent a growing market for group life
products. In addition, growing numbers of retired people mean that the need for annuities should increase. Particular companies
will boost their businesses through developing innovative new products.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
fitchsolutions.com 6Australia Insurance Report | Q2 2021
A Strong Recovery Expected
Australia - Gross Life Insurance Premiums (2018-2025)
e/f = Fitch Solutions estimate/forecast. Source: APRA, Fitch Solutions
Life Insurance Premiums: Steady Growth In A Mature Market
The Australian life insurance market is already showing signs of a strong recovery following the Covid-19 pandemic. We forecast
Page 4
premium growth in 2021 to be 10.7% to AUD26.3bn (USD18.8bn). Growth over the forecast period will level out but remain steady.
We are expecting life premiums to increase from AUD26.3bn in 2021 to AUD31.98bn in 2025, or at an average annual rate of 6.1%.
However, penetration will improve to 1.3% of GDP over the same period. Density should rise from USD728.5 per capita to
USD855.9 per capita.
Life insurance continues to face competition from other conduits for organised savings in Australia, such as superannuation and
real estate. The overall growth of the economy should, however, provide a modest boost to group insurance - which is bought
mainly by the superannuation funds. This may be on hold in the short term as economic growth recovers following the coronavirus
outbreak. It is possible that the lack of affordability of life insurance has hampered sales to individuals - as has been the case with
health insurance.
High household income rates should also be a key factor supporting growth. As one of the wealthiest of the OECD countries,
Australia is a nation where roughly half of all households have an income of USD50,000 or more. It is not clear that products are
priced at levels that households can actually afford and where the products are seen as offering value for money.
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely
derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
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