Brisbane hail losses rise to hit reinsurance layers, could reach AUD$1Bn

Insurance industry losses from the severe hail and thunderstorm event that struck Brisbane, Queensland in Australia are expected to continue to rise, moving well past the point where local insurance companies will call on reinsurance support.

The storm which struck last Thursday, bringing strong winds and violent large hailstorms to the area, is now thought to have caused damage of anywhere up to AUD $1 billion, although how much of that will be borne by insurers is yet to be defined.

The Insurance Council of Australia estimated earlier today that the insurance industry loss stood at $482 million, with 68,981 claims lodged by property and motor vehicle owners affected by the hailstorm – 17,509 for house and contents claims and 51,472 for motor vehicle.

That number is expected to rise further as claims continue to be lodged by residents and commercial property owners that have suffered damage.

Insurers are beginning to count the cost and some already expect the losses will eat through their retention or deductibles and result in them making a claim on their reinsurance program. Suncorp is one example of such an insurer.

Suncorp said in a statement; “The number of claims is expected to increase and although it is too early to accurately estimate the final claims cost for the event, Suncorp expects it to reach the maximum financial impact of $250 million.”

Beyond $250m Suncorp has a 30% quota-share reinsurance agreement with Berkshire Hathaway, which will see Warren Buffett’s firm take a share of the loss.

Another insurer, Insurance Australia Group (IAG) said today that it was dealing with about 15,300 claims from the Brisbane hail storm. Almost 12,000 of these claims are the result of hail damage to motor vehicles, IAG said.

IAG said in a statement that; “The group’s current expectation is that this event will result in a net claims cost of between $140 million and $170 million”

RACQ Insurance also told the media that the bill would definitely be into its reinsurance layer, after having recorded at least 14,000 claims. Another smaller, local insurer Youi has also said that it may need to call on its reinsurers.

The mayor of Brisbane, Graham Quirk, told ABC news that the storm was likely to be the biggest event for insurers in the region in more than 30 years. He said; “I’m told the bill is going to be around $1 billion, claims for one insurer alone are around $300 million.”

Brisbane and much of Queensland, as well as also parts of New South Wales, are now facing a weekend of further storms and hail, although the meteorological agency does not expect them to be as severe as last week’s. Insurers and reinsurers will be hoping that the forecast is right, after the damage caused by last week’s hail event.

So it looks like the reinsurance industry is going to be on the hook for at least a portion of the losses from last Thursday’s hailstorm in Brisbane. It’s impossible to say whether any of this has the potential to leak into the insurance-linked securities (ILS) fund market, through ILS fund participation in affected insurers reinsurance programs on a collateralized basis. There is always a possibility that some ILS manager may have a small exposure to such events now that the ILS market is seeking to grow its penetration of new property catastrophe reinsurance markets such as Australia.

Currently no catastrophe bonds are exposed to severe thunderstorm risks in Australia, although a growing number do carry Australian perils such as cyclones and earthquakes.