AM Best expects the severe flooding in Australia’s eastern states to put pressure on insurance companies’ underwriting results over the near term and add to the industry’s recently elevated loss burden from natural catastrophe events. Furthermore, with the majority of gross losses likely to be borne by the reinsurance industry,

AM Best expects the continued cession of material losses to reinsurers to contribute to further upward pressure on reinsurance rates and a tightening of terms and conditions in upcoming renewals for the country’s direct insurers.

In its Best’s Commentary, “Australia: March Floods Raise General Insurers’ Natural Catastrophe Burden,” AM Best notes that the heavy rainfall and severe flooding that began in mid-to-late March have led to extensive property damage across New South Wales and southeast Queensland.

AM Best expects the number of claims received to date to escalate as the event continues to impact the region, and as access to damaged properties is gained over the coming weeks. 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.

According to the commentary, Australia’s general insurers have exhibited resilience to catastrophe losses over recent years, supported by well-capitalised balance sheets and significant use of reinsurance. This comprehensive use of reinsurance has been a strong contributory factor to the resilient performance of Australia’s general insurers, even in catastrophe-heavy years. Nonetheless, AM Best expects these floods to dampen earnings for fiscal-year 2021, and add to the industry’s recently elevated loss burden from natural catastrophe events.

Meanwhile,Suncorp has provided an update on the expected financial impact from the heavy rainfall and flooding across New South Wales, South East Queensland and Victoria.

As at 12pm (AEST) 30 March, Suncorp had received just over 7,600 claims across all three states. Claims numbers are expected to rise further as customers gain access to affected regions and the extent of damage becomes clear. Around three-quarters of claims are from NSW, with around 20 per cent from Queensland and  the balance from Victoria and the ACT. The severity of claims varies significantly between regions. 

Based on claims lodged to date and the Group’s preliminary assessment of damage, Suncorp estimates net claims costs in relation to this event will be $230 – 250 million. Suncorp expects the majority of claims to be attributed to a single event across all three States for reinsurance purposes. The costs of this event will be capped at $250 million under the Group’s main catastrophe program. 

The Group has a comprehensive reinsurance program in place that provides strong protection for the remainder of the financial year.

The full limits remain available on all the Group’s main catastrophe program and dropdown  aggregate reinsurance covers.

In addition to eroding the deductibles on the dropdown aggregate covers, this event will further erode the deductible on the Group’s Aggregate Excess of Loss (AXL) protection.

The AXL provides $400 million of cover in excess of a retention of $650 million with an event deductible of $5 million. As at 28 February 2021, $370 million of the AXL deductible had been eroded.

Suncorp Group CEO Steve Johnston said: “Suncorp continues to work with our customers, particularly in the hardest-hit areas of the Mid-North Coast of NSW and Western Sydney.“Floods too frequently devastate communities across Australia, which is why as a country we must address this risk. Unfortunately, many homes in Richmond, Windsor, Penrith, Port Macquarie and Taree are in medium to very high flood risk areas.

“As a country, we need to address how we can protect homes in flood-prone regions through government investment in mitigation infrastructure. We must also improve planning decisions to ensure we are not building new homes in high-risk areas,” Johnston said.