Australian bushfire claims rise 43% to A$1.34bn (US$925)

The ongoing Australian bushfire disaster could now become the most costly on record, after estimated insurance claims rose by another 43% to reach A$1.34 billion (around US $925m) and a further sharp increase in the loss is now expected.

The latest figure from the Insurance Council of Australia (ICA) is another significant hike in the expected insurance and reinsurance industry loss total, further increasing the chances of reinsurance market impact and perhaps some attrition to certain ILS fund positions on aggregate layers.

The new loss total is for bushfire claims since November 8th, so does not include fires that caused additional damage from September.

When we last covered the bushfires the claims count since November 8th from the ICA had reached A$939 million from 10.550 claims (A$995m for the entire Australian bushfire season since September 2019), but with weather conditions having improved and made fighting the fires a little easier, it has been possible for more residents to return to their homes, assess damage and file insurance claims.

Now reaching A$1.34 billion from 13,750 claims filed, the figure has leapt significantly and there could be further rises in the coming days, potentially taking the current wildfire outbreak in Australia to become the most costly on record.

Currently the Black Saturday wildfires from February 2009 are considered to have been the most costly insurance and reinsurance market bushfire event at around US $1 billion.

Given where the current fire outbreak stands, at US $925 million, it seems highly possible that the current fires will become the most costly on record in Australia for the insurance industry.

87% of current claims come from New South Wales, 6% from South Australia, 4% from Victoria and 3% from Queensland.

The ICA warns that it expects a further “sharp increase in claims this week” as homeowners property assessments are undertaken and large commercial claims are lodged.

The increasing insured claims figure suggests a growing amount of the loss will be paid for by reinsurance capital providers.

First in line will be the major reinsurers that provide quota share reinsurance coverage to the large Australian primary insurers, followed by those participating in aggregate reinsurance arrangements for some of the larger insurers operating there.

Commercial claims are so far a bit of an unknown, as they could fall more widely and may be larger than some would expect. However, the fact remains that at least 80% of the land burned by the bushfires in Australia is national park and so commercial activity is more limited there.

Australian primary insurance giant IAG was the first to report that the ongoing bushfires in Australia triggered its aggregate reinsurance protection.

Suncorp followed up this week, saying that so far claims from the bushfires had not reached its reinsurance arrangements but that its drop-down and aggregate reinsurance could come into play with as little as another A$50 million of claims perhaps tipping the balance.

On the retrocession side, it seems unlikely that there will be too much impact, aside perhaps from through some major reinsurers sidecar vehicles or private quota shares, but this is likely to be largely attritional unless the industry loss spikes further.

The fact remains though, that the leaking of claims to the reinsurance market will accelerate as the loss rises, so at this stage there is more of a hit expected than at the same time just a week ago.

A further spike in bushfire insured losses, as the ICA suggests will be seen this week, could tip other reinsurance programs into loss positions.

But still, the level of losses is relatively minor compared to the size of the global reinsurance market and its available capital.

The human impact of these bushfires has been considerable and will take years to recover from.

However, these insurance market losses are most likely to only have a localised effect on rates in Australia, with the loss event is still not significant enough in terms of dollar size to pressure any companies unduly, we’d imagine.