IAG, Suncorp, flag mounting damage bill from Auckland floods

Heavy rains and flooding that smashed New Zealand’s biggest city Auckland last week are expected to saddle Australian insurers with mounting bills.

Australian insurers are bracing for ballooning losses from a second round of catastrophic weather after New Zealand’s North Island was pounded by flash flooding and landslides.

Shares in listed insurers IAG, Suncorp, and QBE all traded down on Monday amid expectations of worsening losses.

Insurance Australia Group warned it could face a maximum losses of $236m flowing from the Auckland floods, but Suncorp said its reinsurance arrangements would limit losses to $45m.

However, with more rain on the way, insurers may face a second hit if New Zealand is struck by repeated rounds of disastrous weather.

The flash flooding that hit New Zealand last Friday cut roads and caused several landslides in Auckland, the country’s biggest city.

Forecasters are warning the country could be facing another week of flooding rains, which shut down ASX-listed Auckland Airport after its terminals were inundated.

A state of emergency remains in place across parts of Auckland and its surrounds.

Suncorp warned it was facing 3000 claims across its Vero and AA Insurance brands, with the number likely to swell as its customers returned to homes and properties.

Suncorp chief executive Steve Johnston said the insurer had dialled back its New Zealand risk after the 2011 Christchurch earthquake, buying reinsurance to limit losses to $NZ50m ($45m).

The insurer’s exposure is limited to $NZ25m in a second catastrophic event.

“We’ve taken a prudent approach to how we manage risk there,” Mr Johnston said.

Suncorp’s New Zealand business, unlike fellow insurer IAG, is focused on commercial cover.

Mr Johnston warned the floods may trigger a reassessment of insurance prices across Auckland and parts of New Zealand as the damage bill becomes clear.

“You don’t expect this sort of rain in a place like Auckland,” he said.

“Inevitably what has to happen here is all the risk models get updated.”

Mr Johnston said Suncorp would deploy claims management teams to New Zealand in a bid to process the bulk of claims expected to land in the coming days.

“The Suncorp New Zealand team is already on the ground in the affected areas providing support and assistance,” he said.

In a market update IAG said swelling losses could see it forced to expand its perils allowance for the 2023 financial year, the latest in a string of blowouts on the back of catastrophic weather events.

The listed-insurer has faced back to back years of disaster claims, raising its natural catastrophe claim budget to $909m after a budget blowout in 2022.

IAG, which operates the AMI, State, and NZI brands in New Zealand said it was facing more than 5000 claims so far from the storms.

The insurer, which wrote $2.9bn in gross premium across its New Zealand business, warned it may be forced to revise its natural catastrophe budget as the financial impact of the disaster became clear.

IAG said it was too early to put a number on the total cost of the floods, but told investors its maximum first event retention would be capped at $236m.

IAG chief executive Nick Hawkins said the damage to Auckland was “devastating”.

“Our major event response team has been supporting customers since Friday night, with temporary accommodation and other emergency support,” he said.

“We have a large team ready to help people with their claims and we will have our assessors

on the ground in affected areas as soon as it is safe to do so.”

Swiss insurer Zurich, which writes cover for businesses and motorists in Australia and New Zealand, said it would extend hardship and emergency support to customers in Auckland.

Zurich Australia & New Zealand general insurance chief claims officer Tim Scott-Young said the business would ensure customers receive support.

“The safety of the community is our top priority,” he said.

“We urge anyone in flood-affected areas to follow the advice of local authorities and prioritise their safety.”

JP Morgan analyst Siddharth Parameswaran said the Auckland floods could prove to be a “very significant physical loss” and a large loss event for Australian insurers.

“IAG has more risk from losses stemming from these events,” he said.

IAG was the worst hit listed insurer with shares down 3.74 per cent to close at $4.89.

Suncorp fell 1.95 per cent to $12.56, while QBE closed 1.37 down to $13.67.