Australian NSW floods & storms have billion dollar industry loss potential

The ongoing severe flooding event and storms in the Queensland, New South Wales (NSW) region of Australia has the potential to result in a billion dollar insurance and reinsurance market loss event it seems, as insurers highlight their reinsurance and possible recoveries to be made.

Around 18,000 people have been evacuated from the severe flooding across New South Wales (NSW) after torrential rain fell for a number of days, resulting in overflowing rivers and even dams around the state capital of Sydney, Queensland.

Meteorologists were calling the flooding a 1-in-100 year event over the weekend, but with the water heights still rising and more prolonged rainfall expected, this has now been upgraded to a 1-in-50 year flood event, according to reports.

Some 10 million people across Western Australia are now under a severe weather warning and while the flooding is the most visible impact, there has also been severe storms, hail and also isolated tornadoes associated with the weather event.

La Nina is being blamed for the weather systems, which are quite a contrast to last year’s severe bushfires and droughts at this time of year.

Conditions are expected to worsen today and into Tuesday, with further heavy rainfall expected and more storms and the flood waters are expected to keep rising.

The Insurance Council of Australia (ICA) has now declared a Catastrophe for large parts of NSW after the devastating storms and flooding of the last few days.

More than 5,000 insurance claims have already been filed and major insurers are already checking on their reinsurance coverage.

The number of claims filed is expected to rise significantly over the coming days.

Andrew Hall, CEO, Insurance Council of Australia, said, “It’s too early to understand the extent of the damage to property in affected areas and to estimate the insurance damage bill, however insurers have received over 5,000 claims in the past few days.

“The insurance industry has made this Catastrophe Declaration to activate services and support for affected homeowners and businesses and reassure them that their insurer is there to help.

“As many areas are currently inaccessible due to floodwater, insurers are expecting further claims in coming days as emergency services allow residents to return to their properties to examine the extent of their damage and losses.”

The ICA noted that it’s far too early to estimate the cost of the damages and how much might fall to the insurance and reinsurance sector.

Our sources suggest that the industry loss may reach over a billion Australian dollars and major insurers are already highlighting where their reinsurance attaches.

With over 90cm of rainfall recorded in some areas and more to come, while the impacts are affecting metro regions, the flood event looks set to be among the most impactful seen in Australia in recent years.

Sources say that there is a strong chance this will be a reinsurance event for some carriers, with a number of the large Australian primary insurers likely to call on quota share reinsurance support at the least, with some excess of loss recoveries, or at the least further aggregate deductible erosion, also anticipated it seems.

Insurer IAG said it is ramping up support for affected customers, after more than 2,100 claims were filed with it as of 8pm Sunday.

While too early to estimate its losses, IAG highlighted that its 2021 catastrophe reinsurance program means that its maximum retention is $169 million, after its quota share reinsurance, as of January 1st 2021, while for a second event the retention falls to $135 million after the quota share.

IAG’s quota share reinsurance partners will always assist it on major catastrophe loss events, but it is possible the excess of loss towers also trigger after these floods.

Meanwhile, Suncorp said that it had received over 1,300 claims as of 10am Monday morning local time, but that with this number expected to keep rising it was too early for any kind of estimate of the impacts.

Suncorp also referred to its reinsurance protection, saying that its fiscal year 2021 catastrophe reinsurance program still has full limits available on its Group main catastrophe programand the dropdown aggregate covers.

The insurer said that its main catastrophe program has a maximum first event retention of $250 million and its Aggregate Excess of Loss (AXL) reinsurance provides $400 million of cover, after a retention of $650 million with an event deductible of $5 million.

At the end of February 2021, $370 million of the aggregate deductible had been eroded, Suncorp said.

Our sources suggest the likelihood that the insurance and reinsurance industry toll nears or surpasses AU $1 billion is high, which means these major insurers will take a significant share.