Australian bushfire claims to surpass A$1 billion (now US $686m)

There has been another sharp increase in insurance industry losses from the Australian bushfire season, as the total has now reached A$995 million and will rise further in the coming days.

The latest figure for insured losses from the entire Australian bushfire season since September 2019 is A$995 million (US $686m) from 11,272 claims.

Just between November and January and the bushfires that have blazed across New South Wales, Victoria, South Australia and Queensland there have now been 10,550 claims which amount to insurance market losses currently estimated at A$939 million (US$647m) by the Insurance Council of Australia (ICA).

The threat to reinsurance providers through quota share arrangements, which are common between the major players in the Australian insurance market and some of the largest reinsurance firms in the world, as well as some aggregate arrangements is growing along with the claims count.

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.

Another almost A$300 million has been added to the insurance and perhaps reinsurance market property loss from the bushfires in just a few days (since our last update on Jan 7th).

The claims total is rising rapidly now, helped by better weather conditions which have allowed some more property owners to gain access to homes and businesses and get claims filed.

However, the return to hotter weather and perhaps more dangerous fire weather conditions is likely in the coming days, while the current bushfires are still burning out of control and moving in some areas, making further damage likely.

The current bushfire outbreak is already the second most costly on record, coming second only behind wildfires in February 2009 that cost somewhere north of US $1 billion.

While there is some way to go for the ICA’s claims count to reach that level, it does not seem impossible.

Also, once all insured claims for elements such as business interruption, insured infrastructure related damage, agricultural claims etc. is tallied, the overall total could easily reach that level.

There is the potential for business interruption claims related to the severe smoke levels that have plagued a number of Australian cities, which could add to these figures over time.

At this stage, reinsurance market impacts are still expected to be relatively minor, given this is not a double-digit billion dollar loss, or anything close. But leakage of claims through quota share arrangements could be passed on to some sources of retrocessional capital, again perhaps most likely through reinsurers own quota share arrangements, perhaps even their sidecars.