OREANDA-NEWS. The earnings of Australia's non-life insurers will strengthen through 2016 if losses from natural hazards were to moderate, even though investment earnings are unlikely to recover anytime soon from 2015 levels, given the high allocation to fixed-income securities, Fitch Ratings says in its special report 'Australian Non-life Insurance Dashboard 2016'.

Fitch believes a reallocation of investments to asset classes that offer better yields may mitigate further declines. A higher frequency of natural-hazard loss events had lowered underwriting results in 2015, while fixed-income-heavy investment portfolios have seen large yield declines due to falling interest rates.

Fitch notes a declining trend in both risk-adjusted and un-risk-adjusted capital ratios against a backdrop of falling earnings. However, we consider current industry ratios to be strong despite the decline; this view is consistent with the results of Australian insurer's capital positions when assessed using our internal capital model.

The report also reflects the unfavourable earnings trends experienced by the sector over the three years to end 2015.