S&P Report on New Zealand P/C, Life Insurers

January 12, 2004

Standard & Poor’s has issued a report on the life and P/C industries in New Zealand, which concludes that they face “contrasting futures.”

S&P indicated that “While nonlife insurers will maintain credit quality strength, life insurers are going back to fundamentals to revive their fortunes.” The two sectors, said S&P, “operate in a different trading environment than those of their peers in Australia, despite their predominantly Australian ownership.”

Kate Thomson, associate director, Financial Services Ratings, observed, “The New Zealand nonlife insurance industry consolidated during the last two years through mergers and acquisitions, with a high level of foreign ownership by Australian insurers.” The outlook for the P/C sector continues to be stable underpinned by strong financial strength of the domestic entities and their parents. “This strength, in turn, is supported by a relatively strong earnings profile, solid capitalization in the absence of any major catastrophe and large insured loss, and conservative investment strategy,” Thomson added.

In contrast, S&P concluded: “The outlook on New Zealand life insurance market continues to be negative, reflecting a small and languishing industry that exhibits low growth. This is underpinned by a low level of personal savings arising from few tax incentives and a lack of system support in New Zealand to encourage investments and savings for retirement.

“Nevertheless, the industry, with some assistance from the life industry association and the national government, will gradually emerge from this long and difficult operating environment, and remains supported largely by rated bank and offshore parents.”

The report, “Nonlife & Life Insurers in New Zealand: A Contrast of Fortunes” is available on RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com.

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