New South Wales, Australia fires could threaten Sydney: AIR

The wildfires which have been burning for a number of days in New South Wales, Australia could create a dangerous situation which may even lead to a threat to the suburbs of Sydney, which could cause higher reinsurance losses, according to risk modeller AIR Worldwide.

Currently there are reported to be at least 71 wildfires burning in the Australian state of New South Wales, 29 of which have been reported this morning to be completely uncontained.

Officials in Australia said that an immediate threat in the Blue Mountains to the west of Sydney has been averted for today, but the threat across the state remains high and with hundreds of homes already destroyed and conditions expected to remain dangerous for the coming days, the threat remains and insured losses will likely creep upwards.

The Insurance Council of Australia says that 987 claims worth $128 million have already been received by insurers from the current wildfire outbreak. It’s expected that these losses may result in premium increases across the region for homeowners coverage.

Risk modelling firm AIR Worldwide suggested yesterday that if conditions worsen there could be much larger insured losses as wildfires may threaten the suburbs of Sydney itself.

AIR Worldwide issued the following update:

According to catastrophe modeling firm AIR Worldwide, on Thursday, October 17, bushfires exacerbated by hot, dry, and windy conditions spread across the state of New South Wales, where authorities declared a state of emergency on Sunday. Bushfires are common during the summer in Australia from December through February, but are unusual for this time of year.

“Their unseasonal arrival is being attributed to record high temperatures in the previous 12 months and only half the normal amount of rainfall thus far this spring,” said Dr. Tomas Girnius, senior scientist at AIR Worldwide.

It became so hot in Australia this past January, in fact, that the Bureau of Meteorology had to add new temperature map colors—deep purple and pink—to account for areas of the country experiencing temperatures over 50°C (122°F), a temperature not surpassed since January 2, 1960 (50.7°C).

Dr. Girnius continued, “Fifty-seven fires are burning across New South Wales, with 13 uncontained. One-third of Australia’s population lives in New South Wales, the country’s most populous state.”

According to the New South Wales Rural Fire Service (RFS), the State Mine fire burning between the towns of Lithgow and Bilpin, which was merged by firefighters with the Mount Victoria fire to the south of it in the Blue Mountains, is currently the largest.

It has burned more than 45,000 hectares (about 112,000 acres) and has a 1,500-kilometer (930-mile) fire edge. An emergency warning was issued for just the State Mine fire during the early hours of October 22, local time. The warning level has been downgraded to “watch and act.” The Springwood fire to the southeast of the State Mine fire is smaller at more than 3,000 hectares (about 7,400 acres), but is out of control. The rest are much smaller and scattered throughout the state.

The Fire Inspector had expressed concerns yesterday that there was potential for the three largest fires burning at that time in the Blue Mountains (State Mine, Mount Victoria, and Springwood) to merge into one mega-fire. In an effort to prevent this from happening, firefighters deliberately joined the State Mine and Mount Victoria fires. The tactic was designed to deprive the fires of fuel and thereby not allow them to burn out of control but under their management. If this fire merges with the one in Springwood, such a fire could threaten Sydney, which is the capital of New South Wales, and some of its suburbs to the west, if it manages to cross the Nepean River that flows at the foot of the Blue Mountains. The greater Sydney region has been issued an extreme fire danger rating, which is just one level below the highest rating of catastrophic fire danger.

Dr. Girnius observed, “Thunderstorm activity has brought very little rain (less than 2 mm total expected), which will not aid the firefighting effort, but lightning is increasingly worrisome. The RFS Commissioner has stated that New South Wales is facing the worst fire conditions since the 1960s. Today (Wednesday, October 23, in Australia) was predicted to be the most challenging for firefighters, with another round of warmer temperatures in the high 30s (around 100°F), very low humidity, and wind speeds of 60 to 90 km/h (37 to 55 mph).”

According to AIR, the towns of Springwood and Winmalee in the Blue Mountains have experienced the most damage to property so far. Around the state, more than 200 homes have been destroyed and more than 100 have been damaged, as of this writing.

Currently there are no catastrophe bonds with exposure to Australian wildfire risks, but there are a number of large reinsurance programmes which have collateralized reinsurance from managers in the ILS space in place we understand.

At this time there is not expected to be any major impact to alternative reinsurance capital from this wildfire event, but if conditions worsen considerably we could begin to see some impact to managers with Australian property catastrophe exposures.