Insurers ‘face La Nina claims’ as costly year continues

Insurers could be in for a raft of payouts as the shift from fires to floods is predicted to continue a costly year for the sector.

Analysts cautioned that ‘the period between November and April continues to be riskier for the entire sector’. Picture: Dylan Robinson

Insurers could be in for a raft of payouts as the shift from fires to floods is predicted to continue a costly year for the sector.

Bell Potter analysts are predicting that with the La Nina weather pattern now established, insurers should take warning from “significant costs” that were associated with previous wet weather phenomena.

“So far, the present La Nina may not be as strong as in financial 2012 but costs can still be material — as evidenced by recent NSW and Queensland hailstorms,” analysts said.

“With the (Indian Ocean Dipole) moving away from the crossover point at present and all else being equal, (catastrophe) costs appear manageable this summer.”

The El Nino weather pattern is often marked by drought, while the La Nina sees wetter, warmer weather.

Aon Benfield data shows the global economic loss under La Nina over 21 years exceeded $US77bn ($103bn), while El Nino over 22 years saw $US45bn in losses. “Much of the increase in losses during a La Nina year surrounds increasing frequency of costly landfilling tropical cyclone events in the Atlantic Ocean basin,” Bell Potter analysts note.

Analysts cautioned that “the period between November and April continues to be riskier for the entire sector”.

The fires and hailstorms that lashed Australia over the previous summer resulted in more than $2.16bn in claims. It follows claims from the flooding that inundated Townsville in 2019, which topped $1.2bn.

Bell Potter gave Insurance Australia Group credit for its “much-better” efforts from managing risks, attributed to the insurer’s “extensive quota share arrangements”. Suncorp’s “track record has improved recently due to more reinsurance”, analysts said.