Insurance: Feb 1, 2012

Households were hit with double-digit percentage jumps for insurance for a second year as insurers to restore the earnings after the worst year on record for the industry claims a disaster, a survey finds.

Floods, hailstorms, and New Zealand earthquakes took their toll in 2011, with QBE Insurance Group, Insurance Australia Group (IAG), Suncorp Insurance and Wesfarmers recently warned that their profits will be cut as a result.

Now households will pay, insurers rely on walking in the premium rates by 13 percent this year after lifting them by 10 percent in 2011, an annual industry survey by JP Morgan and Deloitte shows.Premiums for the domestic classes of insurance are expected to rise by seven per cent, while commercial insurance premiums will increase by five percent.

Owners of commercial property face premium increases of nine percent.

Premium rate hikes in 2011 was not enough to offset surging costs from insurers a major flood disaster encouraged spiraling claims and reinsurance premiums, JP Morgan analyst Siddharth Parameswaran said.

"As we have seen the talk of the increasing rate for a while, it really does not seem to be the level where you have enough of an impact in restoring profitability.

"So the industry ... flag larger increase for 2012 we get them - domestic class lead and the pockets of the commercial classes where there is a perfectly obvious reason to do it."

Big international reinsurance companies that insure local players against losses caused by large natural catastrophes.

A general increase in premiums of between two and three percent is needed just to cover reinsurance costs, Mr Parameswaran said.

Revenue in 2011 fell more for the commercial classes of insurance than domestic lines, and a sharp rebound is expected by the industry this year.

The survey is based on unaudited data on June 30, 2011 from 28 industry participants including OAMPS subsidiary of Wesfarmers', but excluding insurance and giants QBE Insurance and IAG.

Since submitting their data, insurers are hit by worse than expected number claims, higher reinsurance costs and declining bond yields causing the fall of investment income.

Suncorp earlier this month warned of a $ 120 million to $ 180 million cost blowout from natural hazards for the six months to December 31, 2011, and IAG said its reinsurance costs for 2011/12 are be as much as $ 100 million higher than a year earlier.

QBE chief shares of 12.7 percent on January 12 after it warned its annual profit halved and cut its final dividend by 62 percent.

A week later Wesfarmers warned of 74 percent drop in interim earnings from its insurance division.

Insurers' profits can be returned to more usual levels in 2013 thanks to the premium rises and expenditure cuts, Mr Parameswaran said.

"For financial year 2013, we rely on them to get into what their target on a basis of the forecast."

Wednesday, February 1, 2012

Households' insurance bills to jump 13%

Insurance

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