The flooding catastrophe in NSW and southeast Queensland will put pressure on insurers’ underwriting results and dampen earnings this year, AM Best says.
The event could also put upward pressure on reinsurance rates and lead to tighter terms and conditions in upcoming renewals, while policyholders may ultimately face pricing increases, the ratings company says.
The AM Best commentary says it’s too early to estimate total costs, with claim numbers set to escalate in coming weeks, but comparisons can be drawn from events such as the 2019 Townsville floods, which drove losses of about $1.3 billion, and east coast storms and flooding last year which cost around $1 billion.
“Losses are likely to emanate primarily from domestic property and motor lines of business as well as from commercial risks, including business interruption and agriculture covers,” it says.
Australia has experienced a period of above-average weather-related losses, with Insurance Council of Australia (ICA) data indicating total losses of more than $8 billion from declared catastrophes in the past two years.
“The occurrence of another material natural catastrophe event is likely to put pressure on insurance companies’ underwriting results over the near term,” AM Best says.
Insurers also face uncertainty over “potentially significant” exposures to pandemic-related business interruption claims, which are subject to legal review, adding to the industry’s large loss burden.
The increased frequency of extreme weather events is expected to see a greater industry focus on linkages to climate risk, while also reinforcing the need for insurers to implement robust underwriting, capital management and enterprise risk management strategies.
“These actions may ultimately lead to tightening of terms and pricing increases for policyholders as insurers refine underwriting appetites,” AM Best says.
The report notes that the comprehensive use of reinsurance has been a strong contributory factor to the resilient performance of Australia’s insurers, even in catastrophe heavy years, while firms have also been supported by typically well-capitalised balance sheets.
“AM Best will continue to monitor and assess the impact of the current flooding and the higher frequency of natural catastrophe events on the credit fundamentals of individual rated entities,” it says.
ICA today said 31,546 claims have been received with an estimated loss of $473 million.
The NSW Government says dedicated community recovery centres have opened in Port Macquarie, Taree, Laurieton and Macksville, with further centres to be established in the Hawkesbury region around Windsor, Wisemans Ferry and North Richmond.
The centres offer information and access to insurance and legal support, financial assistance, business support, clean-up services and mental health and well-being services.
insuranceNEWS.com.au
