Life on the land in Australia


Top insurers tipped

to lose $1b on floods

Danny John
January 5, 2011

While QUEENSLAND prepares for another deluge to add to its worst flooding of recent times, analysts have taken the first stab at the likely costs to the listed general insurance companies

JPMorgan says the bill for insurance losses – as opposed to the overall damage caused – could hit $1 billion, although the investment bank calls it a ”crude guestimate” given the lack of information on claim costs from the industry.

Unlike previous years when there were blowouts in weather-related claims, the general insurers had a quiet 2010 with just the Christchurch earthquake in New Zealand affecting their results. But the latest Qld floods will surely change that.

The biggest claims are set to come on home and contents policies, followed by property, business interruption and motor vehicles. The early guestimate includes only partial coverage for floodwater claims and the insurers do not cover crop damage.

The company with the largest exposure will be the Queensland firm Suncorp, which writes about $1.4 billion worth of coverage in the state each year – equal to 19 per cent of the group’s annual gross written premium (or revenue).

While Suncorp, like the other insurers, has its own insurance cover in place to cap potential losses from major catastrophic events such as floods and bushfires, JPMorgan estimates the company’s net losses will be around $200 million before that reinsurance kicks in.

The company, whose main brands in the state include the Suncorp label and AAMI, has made allowance for such event costs of $460 million this financial year.

Suncorp has so far received 1800 claims, an increase of 350 on the figure that it gave the market on New Year’s Eve, when it signalled the number was likely to rise. The prospect of more rain suggests that the final total will be a lot higher than first thought.

JPMorgan’s initial analysis indicates that Suncorp’s main domestic competitor, Insurance Australia Group, will fare somewhat better given that it derives just 8 per cent of its direct insurance division’s annual revenue – or $300 million – from Queensland.

If IAG suffers gross losses of between $15 million and $50 million, then those costs will be covered by its reinsurance policies. But above $50 million it will have to bear any bill up to a maximum of $175 million.

IAG has received 600 claims on the Queensland floods. This number will rise if the floods spread to northern NSW – the home state of its NRMA Insurance brand – but there have been no reports of serious damage in the towns so far affected.

As for QBE, about $350 million of insurance premiums could be affected, although JPMorgan says that figure is only a rough guess since the company has yet to say anything about its exposure.

The expected size of the claims is affecting the share prices of the three insurers.

Yesterday Suncorp fell 26¢, or 3 per cent, to $8.35, IAG fell 6¢, or 1.55 per cent, to $3.82 and QBE fell 38¢, or 2.09 per cent, to $17.77.

Sourced & published by Henry Sapiecha

January 6th, 2011

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