Australian insurers are leveraging increased premiums to balance out claims costs and sustain earnings, according to a new sector report from S&P Global Ratings.
The publication, “Australia Insurance 2026 Sector Trends: Rising Premiums Offset Claims, Support Earnings,” outlines the evolving market landscape and highlights the factors shaping the industry’s outlook.
S&P Global Ratings forecasts that while revenue growth is likely to decelerate across most insurance lines in 2026, the sector’s profitability will remain supported by ongoing premium adjustments and a stable claims environment.
The report notes that insurers are also focusing on operational efficiencies to manage expenses.
“Profitability will remain solid, supported by rising premiums, a relatively benign claims environment, and a continued focus on cost efficiencies,” S&P stated in the report.
The report identifies several external risks that could affect the insurance sector’s performance.
Trade disputes and geopolitical instability are cited as factors that could increase volatility in capital markets, potentially impacting both investment returns and sector growth.
Despite these uncertainties, S&P points to the industry’s strong capital buffers as a key factor supporting credit quality.
In the property and casualty (P/C) segment, premium rate hikes have contributed to profitability but have also raised concerns about affordability, particularly for personal lines.
Some policyholders are responding by reducing coverage or opting out of policies. Insurers are also contending with higher operating costs due to investments in technology, regulatory compliance, and cybersecurity.
The report observes that recent premium increases and lower claims inflation are expected to bolster P/C insurers’ earnings.
Exposure to catastrophic events is mitigated through comprehensive reinsurance arrangements and government-backed schemes such as the Cyclone Reinsurance Pool.
S&P expects that continued investment in technology and automation will help manage expense growth.
The life insurance sector is seeing improved distribution channels following previous challenges with advisor and bank partnerships.
S&P anticipates that individual risk product sales will benefit from the resurgence of financial advice and the expansion of digital distribution.
However, the sector continues to face pressure from rising mental health claims, which have become a significant component of payouts.
The report highlights the industry’s conservative approach to investment management and asset-liability matching, which limits exposure to interest-rate and longevity risks. Strong governance and disciplined risk controls are also noted as positive factors.
Health insurers are experiencing ongoing medical cost inflation, driven by higher expenses for staffing, facilities, and advanced procedures.
Despite these pressures, demand for private health insurance remains robust, supported by immigration and a preference for private healthcare access. Regulatory approval for premium increases remains a challenge for the sector.
S&P expects profitability to moderate due to claims inflation, but notes that capital adequacy remains a strength. The trend toward same-day and out-of-hospital care is anticipated to help insurers control claims costs.
The mortgage insurance market continues to benefit from low delinquency rates and favourable economic conditions.
However, the Australian government’s Home Guarantee Scheme has reduced the need for lenders mortgage insurance, changing the competitive landscape.
While new business volumes have declined, profitability remains strong due to low default rates and rising property values.
S&P projects modest growth in new business as interest rates ease and housing market activity picks up. The sector’s capital buffers are expected to remain robust.
Across all insurance segments, S&P emphasises that capital adequacy is a core strength for Australian insurers.
The report finds that insurers maintain significant capital redundancy, supported by high-quality capital structures and prudent risk management.
While the sector faces a range of external and operational risks, S&P concludes that premium growth and strong capital positions are enabling Australian insurers to manage claims pressures and support stable earnings.
The report suggests that ongoing vigilance around emerging risks, including cyber threats and climate-related exposures, will be critical for sustaining sector resilience.
