Moody’s Investors Service has warned of a dent to profits from the ongoing bushfires ravaging parts of Australia, but says that the strong fundamentals of the region’s property and casualty (P&C) insurers suggests that losses will be manageable.
Credit: EPA
As of January 7th, 2020 the Insurance Council of Australia (ICA) had received 8985 claims since September 2019 from the New South Wales, Victoria, Queensland, and South Australia territories as a result of the bushfires.
The ICA says that as of this date, the insurance industry loss from the event is expected to be as much as AUD 700 million, although this is expected to rise as the claims count continues to soar.
According to Moody’s, the losses will hit the profits of Australian P&C insurers but are expected to be manageable given the industry’s strong underwriting performance, high levels of reserve adequacy and capital, and also its strong use of reinsurance protection to mitigate the impacts of natural hazards.
Frank Mirenzi, a Moody’s Vice President and Senior Credit Officer, commented: “Although we expect claims to continue to rise, dampening the sector’s profits, they are likely to be manageable as the industry has a long history of strong underwriting discipline, which has kept its combined operating ratio consistently below 100% over the last 10 years.
“Despite the manageable impact for insurers, the catastrophic fires highlight that the P&C insurance industry is at the forefront of environmental risk. The industry is exposed to the economic consequences of climate change, primarily through the unpredictable effect of climate change on the frequency and severity of weather-related catastrophic events, such as hurricanes, floods, convective storms, drought and wildfires.”
The ratings agency anticipates that the majority of the losses will be assumed by large Australian primary insurers Suncorp and IAG, driven by their significant market share in home and motor insurance in the country.
Suncorp announced earlier today that it has received more than 2,600 bushfire-related claims since September 2019 with a total estimated cost of up to AUD 345 million, and advised that depending on how high the ultimate loss moves, it might well leverage some of its reinsurance protection.
IAG has also provided an update on the bushfires, stating that it has received more than 2,800 bushfire-related claims since the beginning of September 2019, revealing that it had tapped its 2019 reinsurance program to recover losses from the ongoing bushfires in Australia. The firm is expecting to incur roughly AUD 400 million of natural catastrophe losses in the second half of 2019 post-quota share, which is well above its corresponding allowance of AUD 320 million.
Based on the latest loss data from the ICA and these two primary insurers, it’s clear that most of the losses will be assumed by Suncorp and IAG, although it remains uncertain exactly how much of this will be passed to reinsurers.
Moody’s notes that despite this expectation, QBE Insurance Group Limited and other international insurers with large operations in the region, such as Allianz and Zurich, will also be adversely impacted by the ongoing bushfires.
Ultimately, says Moody’s, it expects that claims costs will continue to rise from the bushfires which will have an impact on firms’ and therefore the P&C sector’s profits for the fiscal year ending June 30th, 2020. However, the costs are expected to be manageable for the sector.
