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NSW flooding to pressure underwriting margins, dampen earnings: AM Best

30th March 2021 - Author: Charlie Wood

AM Best says it expects recent flood activity in Australia to put pressure on general insurers’ underwriting margins and dampen 2021 earnings.

am-best-logoAs of this week 9,213 claims have been received following devastating flood events across the east and southeast of the country.

Days of torrential downpours have prompted rivers and dams to overflow around Sydney and in south-east Queensland.

Analysts say a comparison can be drawn from recent flood events in the country, including the 2019 Townsville floods and February 2020 east coast storms and flooding, which drove insured losses of approximately AUD 1.3 billion and AUD 1.0 billion respectively.

AM Best notes that Australia has seen a period of above-average weather-related losses in recent years. Data from the ICA indicated total insured losses of above AUD 8 billion from declared catastrophe events over 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.

Furthermore, Australian insurers face ongoing uncertainty over potentially significant exposures to business interruption claims arising from the COVID-19 pandemic, which are currently subject to ongoing legal review, adding to the industry’s large loss burde

The ratings agency says claims will only escalate further as access to damaged properties is regained over the coming weeks.

Net retained exposures are expected to be controlled by the attachment points of carriers’ catastrophe reinsurance programs.

Losses are expected to emanate primarily from domestic property and motor lines of business, as well as from business interruption and agriculture covers.

·AM Best notes how comprehensive use of reinsurance has been a strong factor in the resilient performance of Australia’s general insurers against catastrophes, but says continued cession of material losses to reinsurers may further put upward pressure on reinsurance rates.

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