Cyclone Debbie industry loss seen close to Yasi levels (AU$1.4bn)

Cyclone Debbie, which struck the northern Queensland coastline with wind gusts of up to 260kph, is thought to have caused an insurance industry loss somewhere around the level seen with 2011’s Yasi, which could be as much as AU$1.4 billion, but reinsurance arrangements will protect primary insurers.

The Insurance Council of Australia (ICA) today expanded its catastrophe declaration to include northern Queensland as the flooding caused by cyclone Debbie’s torrential rains as the remnants of the storm move south.

Insurance claims are starting to mount as well, with the storm now moving away from areas and residents able to assess damage and lodge claims with their insurers. The impact from Debbie, which woke up the live cat market as the storm approached, is beginning to become apparent.

ICA CEO Rob Whelan explained the reported impacts to insurers so far; “Though 7,500 claims have been lodged from Queenslanders as of noon (Brisbane time) today, this is only the early stage of a natural disaster and I expect the insurance losses could reach into the hundreds of millions of dollars as householders and businesses return to their properties and lodge claims.

“This level of catastrophe has not been seen since ex-TC Oswald in 2014, when storms and flooding affected large parts of Queensland and NSW and caused insurance losses of almost $1.2 billion.”

Whelan also told a press conference that it was possible that the ongoing flooding claims could push the loss over $1 billion.

So the ICA is suggesting an insurance industry loss at Oswald or greater levels, but this is still very early days as impacts from the Debbie related floods won’t be fully understood for some time.

Meanwhile, Geoffrey Saville, a member of Willis Towers Watson’s Analytics Technology Team and the Willis Research Network (WRN), said yesterday that compared to 2011’s cyclone Yasi which caused a $1.4 billion industry loss, “Debbie is likely to be higher than this amount.”

So that suggests an impact to insurance and reinsurance markets of above AU$1.4 billion, which is around US$1.08 billion. It’s important to also note that some market experts, such as Aon’s Impact Forecasting, put Yasi’s industry loss higher, at around US$1.6 billion.

Impact Forecasting said yesterday that it is too early for an industry loss estimate, but said the insurance impact would certainly be in the hundreds of millions.

Rating agency Standard & Poor’s said that “comprehensive reinsurance arrangements” would help to mitigate the impact on Australian property & casualty insurers, and hence rating impacts were unlikely due to cyclone Debbie.

Net claims are likely to be below cyclone Yasi, S&P explained, however the gross claims (so those before reinsurance) are likely to be “material.”

The reason the net impact could be lower than Yasi is that rated insurers in Australia have low retentions before their reinsurance coverage kicks in, and they have “high levels of coverage from panels of reinsurers of strong
creditworthiness,” S&P continued.

S&P believes Suncorp to be the most exposed, but “its catastrophe and aggregate reinsurance cover have combined to fully mitigate any claims, which will be passed to its reinsurers.”

IAG has les exposure in the region, S&P said, while QBE is not expected to face any impact to its credit quality thanks to “the combination of its reinsurance cover and strong capital adequacy.”

Other smaller insurers operating in the region, such as Allianz Australia Insurance Ltd., Chubb Insurance Australia Ltd., and AIG Australia Ltd. all have low levels of retention of catastrophe risks, which suggests they too will pass a significant proportion of their cyclone Debbie claims on to their reinsurance panels.

So the expectation continues to be that reinsurance capital providers, which includes any ILS fund managers and collateralised reinsurance vehicles that are exposed, will take a significant share of the industry loss caused by cyclone Debbie.

This capital support will help insurers to pay claims and support their and the affected region’s recovery from the storm.

Whether the eventual industry loss rivals Yasi remains to be seen, but so far tentative estimates suggest something in the same region of industry impact.

Also read:
– Cyclone Debbie strikes Queensland, threat woke up live cat market.

– Suncorp expects to call on aggregate reinsurance for cyclone Debbie

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