IAG braces for storm bill as claims flood in

Insurance Australia Group says it will likely cop a damages bill of ­between $60m and $80m for the recent storms.

IAG has received more than 10,000 claims following the east coast storms. Picture: Braden Fastier

Insurance Australia Group, the nation’s biggest insurer, says it will probably cop a damages bill of ­between $60 million and $80m for the storms that ravaged the country’s east coast over the past week.

The $14 billion insurance giant said the figures were still un­certain, but they were its best guess after receiving more than 10,000 claims following the rain and floods brought on by the east coast low.

The Insurance Council of Australia said as of yesterday morning, about 19,100 claims had been fielded by the nation’s insurers and losses were now ­estimated at a total of $74.3m.

While the weather left a trail of flooding and beach erosion down the coasts of Queensland, NSW, Victoria and Tasmania, the cost of damages was limited thanks to the absence of hail and clauses that exclude storm surges and actions of the sea.

While 93 per cent of new home insurance covers flood, actions of the sea or gradual sea level rise are not considered flooding.

“The widespread and long ­duration nature of the weekend’s storms could have led to higher losses,” UBS analyst James Cog­hill said.

“IAG’s release today confirms these are not that significant and likely to have minimal impact on reported margins.”

IAG said the damage would not alter the expectations for its full-year guidance and expected its insurance margin — the key ­measure of profitability — to come in at the lower end of a 14-16 per cent range.

But the damages bill will drag IAG’s disaster claims close to the limit of its $600m natural perils ­allowance for financial 2016.

June is typically a quiet month for wild weather events, but a number of smaller bad weather episodes have added up over the year.

The update eased investor ­concerns about the extent of the wreckage along the coast, and IAG shares ended yesterday 1.5 per cent higher at $5.82.

Further damages are expected to be minimal, too, as IAG’s ­market share in Tasmania is relatively low and the claims flooding in are mostly related to home and not to motor.

“We understand allowance has been made for a normal level of losses for the balance of June,” Mr Coghill said.

The insurer’s quota-sharing agreement with Berkshire Hathaway also insulated the firm.

The deal with Warren Buffett sees Berkshire access a slice of IAG and its profits in exchange for ­reinsurance cover and capital injections, but means the Oracle of Omaha will pay 20 per cent of claims in exchange for 20 per cent of premium revenue.

Insurers have largely copped the brunt of investor angst on the market this week, with Suncorp, IAG and QBE slipping under pressure before all three stocks bounced back yesterday.