Fitch: Outlook Stable for New Zealand Insurance Sector in 2014

Thu Dec 12, 2013 5:00pm EST

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2014 Outlook: New Zealand Insurance here SYDNEY/SINGAPORE, December 12 (Fitch) Fitch Ratings' says in a new report that its Rating Outlook for the New Zealand insurance sector remains Stable. The Sector Outlook, an indicator of fundamental trends, is also Stable. The agency believes New Zealand's insurance companies are well placed heading into 2014 despite some pressures, and does not foresee a significant number of rating changes over the next 12-24 months. There have been a number of regulatory changes in New Zealand that have benefited the overall credit profile of the insurance sector, including licensing requirements incorporating risk-based capital requirements; fit-and-proper person requirements for directors and senior management; and the requirement to formally identify and document risk management frameworks. Fitch expects earnings for the life and non-life sectors to continue to diverge in 2014. The loss of significant tax concessions and competition has driven down the profitability of the New Zealand life sector, although investment returns have held up quite well. In the non-life sector, the agency has seen stronger earnings coming through from premium rate increases and the stabilisation of Christchurch earthquake claims reserves. Reinsurance capacity is vital for the New Zealand insurance sector and wider economy as the Christchurch earthquake showed, and it remains available for the industry. Moreover, reinsurance recoveries currently provide the New Zealand economy with an extremely large and externally funded economic stimulus that is expected to equate to around 15% of GDP over the next five years. Fitch expects New Zealand insurers to maintain their conservative approach to investments in 2014, with investment portfolios that are heavily weighted towards highly rated cash and fixed-income securities. Government bond rates have been rising, which will support higher investment yields, and reduce the likelihood of a larger allocation towards growth assets or lower quality fixed-income securities. The Stable Sector Outlook reflects Fitch's expectation that the market will be supported by New Zealand's robust economic performance. Moreover, as New Zealand insurers are subsidiaries of larger - mainly Australian - insurance or financial institution groups, the performance of the Australian economy could factor into the Outlook. A change in the credit profile of the group could ultimately impact the credit profile of the New Zealand insurance entity. The new risk-based capital requirements could also have a positive impact by strengthening capital ratios. This may occur through insurers electing to eliminate more risky and more capital intensive exposures or through an increase in absolute levels of capital. The report, '2014 Outlook: New Zealand Insurance', is available at www.fitchratings.com or by clicking on the link above. Contacts: John Birch Director +61 2 8256 0345 Fitch Australia Pty Limited Level 15, 77 King Street, Sydney, NSW 2000 Tim Roche Director +61 2 8256 0310 Jeffrey Liew Senior Director +852 2263 9939 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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