Source : THE AGE NEWS
The bumper returns that investors in insurance companies enjoyed last year are unlikely to be repeated in 2025, analysts and investors say, amid signs the surge in premiums of recent years is slowing as inflation cools off.
Investing in insurance stocks paid off in 2024, with industry giant IAG (owner of NRMA insurance) delivering total shareholder returns of 54 per cent over the year, while Suncorp shareholders made 44 per cent and QBE shareholders made 34 per cent, according to Morgan Stanley analysis.
The high returns, due mainly to a surge in the companies’ share prices, came as insurers continued to raise premiums sharply on home and automotive cover. The companies have been raising premiums amid increased labour costs, higher reinsurance costs, and a wave of natural disaster claims, leaving policyholders facing premiums growing at the fastest rate in more than 20 years.
Natural disasters, including record-breaking flooding in northern NSW and southeast Queensland, contributed to growing insurance premiums. Credit: Nearmap
But analysts and investors believe that the cycle of premium rises has peaked, with prices still rising but at a slower pace, and Macquarie analysts last week saying they thought this was “as good as it gets” for Australian insurers.
Morgan Stanley analysts also said last week that premium growth was slowing after a rapid rise in recent years. Home premiums had leapt 54 per cent since December 2021, the analysts said, and motor policies had surged 56 per cent.
Firetrail Investments portfolio manager Scott Olsson expected revenue growth to slow as inflation comes “under control”, but warned that it would only reduce how quickly premiums rise.
“It’s hard to say its relief, because you shouldn’t open your renewal and see motor vehicle insurance premiums rising by 20 per cent,” Olsson said.
“It’s better than the other years, but we’ll probably still see increases … it’s a product that’s hard to justify dropping, so it’s quite a defensive product, but for lots of people it is tough to afford.”
Insurance prices grew 11 per cent in the 12 months to November 2024, figures from the ABS showed last week, down from 14 per cent in the year to October. The slower price growth has been helped by slowing inflation, and comes after insurance prices peaked at 16.5 per cent in autumn of last year.
AMP chief economist Shane Oliver said surging premiums reflected the “costs and price pressures associated with the pandemic”, but suspected that growth would remain positive “for a while” as the economy continues to recover from inflationary challenges.
“The cost of rebuilding a car or house has come down,” Oliver said. “Provided we don’t see any other natural disasters [in the short term], that slowdown of premiums will continue.”
Premium increases could slow to as low as five per cent over this year, Oliver, said, though double-digit jumps are also on the cards. Changes to house, vehicle and home-contents insurance – among the biggest movers in recent years – will vary between households due to factors such as location and elevation.
Despite an expected slowdown in premium growth, Atlas Funds Management chief investment officer Hugh Dive doesn’t forecast prices to decrease this year, saying Australians shouldn’t expect “any massive relief” in the near term.
“The sector can show some great profits, unlike manufacturing it’s just selling promises – it’s not having to physically make anything,” Dive said.
Hugh Dive doesn’t expect any relief on insurance premiums this year.Credit: Louise Kennerley
“We’re pretty bullish on that sector both domestic and internationally and it has worked well … the sector has been about as good as I’ve ever seen it.”
AMP’s Oliver predicted there could be “more constrained period” for insurance shares when compared with last year’s big gains on the market. “Investors should be conscious that we might have seen the best of insurance company share prices,” Oliver said. “They’ve had a good run – it doesn’t mean that they’re going to fall, but it might slow down.”
Olsson expects IAG to advance further this year, saying the company’s scale placed it in a “strong position” against the rest of the sector, including the banks, which were among the best performers on the sharemarket last year.
Dive expected insurance companies, namely QBE and Suncorp, to continue its forward momentum in 2025.
“It’s been a good time,” Dive said of insurance stock in recent years. “The coming year will be interesting – the biggest gains have been made, but there’s no obvious catalyst for the shares to fall into a hole. But knowing insurance, it will happen.”
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