Insurers’ flood hit approaching $80m as number of claims continues to climb

Insurers are bracing for mounting costs from the floods sweeping NSW, with losses currently approaching $80m.

Almost 60,000 residents remained under evacuation orders early on Thursday. Picture: David Swift

Insurers are preparing for a further deluge of claims for damages with flood costs already hitting $79.7m after continuous heavy rains lashed large parts of NSW.

The latest tally has 6853 claims for damage lodged with insurers, a rapid rise in claims as a result of the floods that have hit NSW since last weekend, according to Insurance Council of Australia data.

Claims have soared from initial estimates of 1600 on Tuesday, which saw insurers declare the inundation of the Nepean and Hawkesbury Rivers region a “significant event”.

Recent rainfall spreading across the Central Coast and Hunter Region have widened the flooding, however the insurance industry has yet to declare the flooding a catastrophic weather event.

Insurers have stopped short of making the declaration amid expectations the worst of the damage is over.

Almost 60,000 residents remained under evacuation orders early on Thursday.

Forecasters have pointed to major flooding sweeping through the Lower Hunter Region in the coming days, but have signalled the worst of the rains have passed.

The current cost of the latest floods comes after insurers paid out $4.38bn for the damage inflicted on NSW and Queensland earlier in the year.

Those floods, which inundated swathes of NSW and Queensland, including many areas hit by the latest rains, saw insurers hit with 225,000 claims.

However, much of the loss from the floods has been picked up by reinsurance arrangements for Australia’s insurers, including Insurance Australia Group, Suncorp, QBE, and Allianz.

IAG finalised its aggregate reinsurance cover on Wednesday, locking in $350m in reinsurance cover for losses above $500m.

However, this is only for individual events which cost IAG more than $50m.

IAG is yet to finalise its reinsurance cover for catastrophic weather events, which falls due in January, but Barrenjoey analysts have warned it may be forced to bear a larger amount of the cost in future as reinsurers distance themselves from massive losses in Australia.

IAG has previously flagged a significant lift in its natural catastrophe losses, ballooning from an expected $765m to $1.1bn at last estimates.

In a note on Thursday Barrenjoey analysts noted IAG was facing earnings volatility “similar to that of (Suncorp) post its recent changes” and the insurer had opted to provide significant protection against larger events, while Suncorp remained more protected for a number of smaller events.

“IAG is arguably well protected from a series of large events in FY23E. However, IAG has no reinsurance for events less than $50m,” Barrenjoey said.

“This has been an area of increasing claims in recent years and may need to be addressed with a large step-up in the natural perils allowance.”

Barrenjoey analysts cautioned IAG may be forced to hold a greater share of its natural perils allowance on its books when it finalises its catastrophe reinsurance cover in the coming months.

Barrenjoey is tipping that the hefty cost of a string of natural catastrophes will weigh on IAG’s profits, forecasting an insurance margin of 9 per cent, well below IAG’s guidance of 10-12 per cent.

“On these assumptions, the earnings volatility from weather in FY23E for IAG is similar to (Suncorp). Under a more severe scenario there is 20 per cent + cash NPAT risk,” they said.

“What IAG was not able to say in its announcement is why we remain cautious on the stock.”

Suncorp has also come in for attention, with Morgan Stanley equity analysts last month warning it would need to lift its natural catastrophe budgets “substantially”.

IAG shares lifted 1.2 per cent on Thursday, to $4.37.