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RESEARCH AND BRIEFINGS

Insurance Market Mid-Year Report 2015

 


The first half of 2015 (H1) has been an active period for the Australian insurance market as it continues to respond to competitive pressures. Heightened cyber security risk, political and economic uncertainty, low interest rates and slow economic growth are all challenging the market at a time when there are significant new capital inflows and surplus capacity.

For the third consecutive year H1 natural disaster losses were below the recent 10-year H1 average (US$12 billion versus US$27 billion). Should this trend continue, the market may see no regions globally surpass their 10-year average in 2015. This benign loss environment is the major contributor to insurers’ strong profitability and, ultimately, the favourable market conditions for buyers.

Market consolidation has continued in 2015 with a number of mergers and acquisitions (M&As) finalised and new ones announced, both locally and internationally. This increased consolidation activity is symptomatic of a soft market, where insurers are substantially challenged to maintain returns and deploy surplus capital through organic growth. M&As allow insurers to deploy excess capital, diversify revenue, build scale and increase profitability, thereby meeting stakeholders’ aspirations

It is widely anticipated that the US Federal Reserve will raise interest rates in the second-half of 2015 and proceed with incremental rate increases (subject to continuing economic recovery). This is expected to have minimal impact on market capacity in the short term as capital providers will still see insurance as a more attractive investment return.

Locally, the outlook remains positive despite warnings of economic headwinds in Australia spurred by a low growth environment and the continued fall of commodity prices. There appears no end in sight to the soft market conditions, driven by the combination of new capital, surplus capacity and the lack of catastrophes.

Read more in our full report.