Australia’s big insurance companies were sold off heavily on the share market on Friday.<\/p>\n
Analysts readjusted their valuations after a wave of anxiety hit the sector on Wall Street on Thursday.<\/p>\n
The central concern for investors is that growth in insurance premiums (a major source of revenue for insurance companies) is slowing significantly.<\/p>\n
The Wall Street sell-off began when Goldman Sachs, Morgan Stanley, JPMorgan, and Bank of America all downgraded their revenue forecasts for the US insurance sector.<\/p>\n
They cited “decelerating net written premiums (NWP) growth” from the high single-digit rates in 2023-2024, to mid single-digits (3-5 per cent) in 2025.<\/p>\n
Analysts say US insurance companies have leaned heavily on rising inflation as a reason to lift insurance premiums in recent years.<\/p>\n
Now inflation is largely under control, that reason is no longer valid.<\/p>\n
<\/p>\n
Wall Street reached another record high on positive economic data and company profit results. (AP: Richard Drew, File)<\/p>\n
This, says Wilson Asset Management, could see lower growth in insurance premiums for insurance companies across the globe.<\/p>\n
“Analysts don’t see too much growth in US premiums anymore,” the ABC was told on a call with the investment firm.<\/p>\n
“Australian insurers are being hit by that idea.<\/p>\n
“QBE’s share price has suffered the most damage because it has the biggest US exposure.”<\/p>\n
A canary in the coal mine<\/p>\n
The ABC also understands stockbrokers are keenly watching US-based The Travelers Companies.<\/p>\n
It is a US multinational insurance company.<\/p>\n
Consumers in dark over insurance premium hikes<\/a><\/p>\n As insurance premiums across the country rise, insurers are posting bumper profits.<\/p>\n It fell 4.6 per cent Friday (Australian time) after reporting “net premiums” below what the market was expecting.<\/p>\n It appears to be further endorsement that the premium cycle may have peaked.<\/p>\n The premium cycle refers to the cyclical ups and down in insurance premium growth.<\/p>\n US regional banking exposure<\/p>\n There are also concerns around the exposure Australian insurance companies may have to US regional banks.<\/p>\n Zions Bancorporation, Jefferies, and Western Alliance fell sharply on Friday (Australian time) as investors grew uneasy about risk in the sector.<\/p>\n These banks had exposure to two auto bankruptcies.<\/p>\n Zions disclosed it would take a $50 million loss in the third quarter on two commercial and industrial loans from its California division.<\/p>\n Western Alliance separately disclosed it had initiated a lawsuit alleging fraud by Cantor Group.<\/p>\n The ABC has been told that stockbrokers think the sell-off in Australian insurance companies was compounded by credit risk in US regional banks.<\/p>\n The ABC understands that queries from clients of stockbrokers are mostly around QBE investment risk, not premium rates.<\/p>\n QBE told the ABC it had no comment.<\/p>\n Bond markets hurting insurers<\/p>\n The bond market is also playing a role in the so-called “risk off” sentiment in the insurance sector.<\/p>\n Insurance companies invest in bonds, and the bond market has been volatile this year.<\/p>\n