Mounting bushfire claims are likely to impact the profitability of Australian property and casualty (P&C) re/insurers throughout the first quarter of 2020, but will remain manageable overall, with no threat to industry capitalisation, according to analysts at financial research firm Morningstar.
Recent estimates from the Insurance Council of Australia put industry bushfire losses since November in the region of AU $1.65 billion (US $1.13 billion), and a potential AU $514 million (US $352 million) from a major hailstorm last week.
Based on these numbers, Morningstar is anticipating that insurers could take close to AU $2 billion of losses from both the bushfire and hail events during Q1.
This figure is not expected to present any major issues for the industry, although insurers’ earning will come under pressure due to the combination of catastrophe claims and low interest rates.
However, in the absence of any other major catastrophes during 2020, losses should be absorbed by the annual results of the Australian P&C industry with negligible impact on its capitalisation.
That said, analysts noted that the growing frequency and severity of natural catastrophes in Australia could create additional challenges for the industry, which might restrict coverage or make insurance unaffordable in certain zones.
Given the prevalence of wildfires during the summer season, the underwriting results of the Australian P&C industry are typically more impacted by natural catastrophes in the last and first quarters of the year.
Overall, Morningstar believes the Australian P&C industry has shown good underwriting discipline and has been able to generate positive technical results for the last 10 years, maintaining combined ratios consistently below 100%.
The firm is also confident that insurers are incorporating new potential catastrophe trends into their pricing strategies, and expects premiums to rise in parallel with a hardening of the international reinsurance markets.
Morningstar’s analysis largely echoes the comments made recently by AM Best, which said that bushfire losses will probably hit full-year earnings and loss ratios for regional insurers, but that the market is well placed to withstand losses.
