The industry loss to insurance and reinsurance markets from March’s severe flooding that affected New South Wales and Queensland, Australia has now been revised down significantly to A$751 million by PERILS, as the company suggests the sector over-reserved for this flood catastrophe event.
PERILS has initially reported an industry loss estimate of A$1.055 billion for losses suffered by the property and motor hull lines of business, but that was then lowered to A$916 million (around US $700m).
Now, the total has been reduced much further, to A$751 million, which PERILS attributes to “initial over-reserving of losses in the wake of the flood event.”
After a number of significant flood events in Australia in recent years, as well as higher severe weather and catastrophe losses, from hail, convective storms and bushfires, it’s possible that Australian carriers and the multinationals operating there were being over-cautious in this case.
Of course, for the insurance-linked securities (ILS) market, particularly collateralised reinsurance, there is always a chance of collateral being trapped if loss reserves are reported far higher than necessary, so this may be something to watch going forwards, especially as fears of increasing frequency or severity of certain perils and climate risk become increasingly widespread.
PERILS said that the now A$751m is largely made up of personal lines property losses, at 69% of the total industry loss, while commercial lines property losses represent 19% and motor losses 12%.
This Australian flood event saw significant river and surface water flooding occur, after a blocking high pressure system in the Tasman Sea interacted with a low-pressure system off north-west Australia that fed moist tropical air into eastern Australia.
The Mid North Coast, and the Hunter and Greater Sydney regions experienced the worst flooding, while parts of south-east Queensland and eastern Victoria were also hit by storm and flood damage.
Over a 7-day period, the New South Wales coastal region experienced the highest recorded rainfall since national records began in 1900, related to this low pressure system feeding tropical air over the landmass. A number of locations along the mid-north coast of New South Wales recording as much as 600-800mm of rain.
Damage from the floods and storms was largely insured across private property and businesses, but losses to public infrastructure, crops and livestock remained largely uninsured.
Darryl Pidcock, Head of PERILS Asia-Pacific, stated, “This is the first time we have observed two consecutive decreases in industry loss numbers for a PERILS-captured event. This clearly evidences the difficulties associated with setting adequate loss reserves for this kind of event, which represented a mixture of storm drain and river flood losses. All catastrophe events are highly complex, but the complexities associated with flood events are particularly problematic and the March 2021 floods were no exception.”