Insurance cycle reaches peak, say Macquarie analysts

Hikes in insurance premiums may have peaked with Macquarie saying the sector’s repricing of new policies are coming to an end after a long run of gains.

Insurance pricing may have peaked, says Macquarie.

Hikes in insurance premiums may have peaked with Macquarie saying the sector’s repricing of new policies are coming to an end.

Macquarie analysts have called the top of the premium price cycle that has rapidly ramped up profits after several woeful years for the insurance industry.

In a note to investors, Macquarie analysts said home insurance prices in the December quarter were 8.2 per cent higher than the prior corresponding period.

This was also reflected in a peak on small business insurance pricing, which notched up a 5.7 per cent premium hike in the December quarter over the prior corresponding period.

Insurance Australia Group, which runs the NRMA and RACV brands, lifted prices above rival Suncorp, with renewals at 9.5 per cent higher versus just 6.5 per cent.

“The premium rate cycle peaked in the June 2023 quarter and most products are now cycling all-time high comparative periods,” Macquarie analysts said.

As pricing increases translated into higher earning margins, “this could be as good as it gets for insurers, and we proceed with caution,” Macquarie said.

“While the pace of premium rate increases is moderating in our data, we suspect this is due to underwriting agencies pushing for growth,” the brokerage said.

Macquarie said the premium rate cycle was coming off all-time highs for the SME segment of the market with expectations this could step lower again in the June half.

Macquarie said that in the short term IAG could face more frequent catastrophes, higher reinsurance costs and higher-for-longer claims inflation.

Premiums for car, home and home contents insurance are contributing to rising costs of living pain. Last year, 15 per cent of all households faced home insurance affordability stress, meaning their insurance premiums now cost more than four weeks of gross household income. This equates to 1.61 million households, up from 1.24 million a year ago — a 30 percent increase in just one year, a report by the Actuaries Institute found.

IAG, operator of some the country’s biggest brands, handed shareholders a $350m buyback in August after announcing a 7.9 per cent lift in profits to $898m.

It ruled off a 79.1 per cent jump in profits from its insurance division to $1.43bn driven by a surge in premiums across the group.

IAG in November snapped up the insurance operation of RACQ in a deal that is expected to add $1.3bn in gross written premium to the national insurer.

Suncorp announced $1.19bn full-year profit in 2024, with a bumper 11.7 per cent lift in returns as it detailed plans to shower investors with cash from its $4.1bn sale of Suncorp Bank to ANZ. But chief executive Steve Johnston said the insurer was seeing an increasing number of claims tied to poor property design and building materials, warning Australia risked baking in future problems amid the construction sector crunch.

Originally published as Insurance cycle reaches peak, say Macquarie analysts