Source - RACQ ->...

Source - RACQ -> https://www.racq.com.au/about-us/news-and-media/news/2023/6/ns280623-racq-withdraws-from-queenslands-ctp-insurance-scheme


RACQ's decision to exit the QLD comprehensive third party market has many implications for those who provide insurance products domestically including QBE, Allianz, AAI and SUN.

From a competition perspective, it would appear to be a benefit on this front. RACQI stepping out of the CTP market means there is one less competitor. The gross written premiums on RACQ's books will need to be redistributed to existing market participants and will provide uplift to those who can win new market share.

The negative side is cocooned in the motive behind RACQ's decision to exit the market - a lack of profitability. As the above screenshot shows, the insurer was suggesting a running FY22 combined operating ratio of 123%. (NB - >100% implies a loss making operation). They cited the ongoing costs associated with claims and reinsurance as the driver of the unsustaining COR. Whilst inflation wasn't mentioned in the article, it would be a pertaining factor also. (NB - IAG's Investor Day slide deck gives high level insight into the level of motor inflation).




Source - SUN 1H23 presentation

It becomes a strangely scary thought that insurers are still unable to demonstrate any sustained high levels of profitability despite the recent inflationary environment providing them a channel to pass on significant pricing increases.

This news flags
a) that further pricing increases are likely, and;
b) Reinsurance and claims costs are rising which indicates a system of instability for the insurance market.

The net impact to SUN is hard to ascertain. It reads through as 'more business at a lower rate of profitability' to which the impact is largely unquantifiable.

Concluding on the above, I believe that the insurance space is a beehive of activity for investors. Further premium increases combined with deflating (or slowing inflation) in motor costs, fuelled by declining used/new car prices and a rising yield on the investment book predicates opportunity to invest in domestic insurers.

At this stage there are too many unknowns; I am sticking to exposure through the insurance brokers which alleivates exposure to claims/reinsurance inflation whilst retaining exposure to insurance repricing.