Recent Australian catastrophe events to cost insurers AUD$515 million+

The recent spate of natural catastrophes and severe weather events in Australia are set to cost the insurance and perhaps reinsurance industry over AUD $515 million (USD $355m+), according to the Insurance Council of Australia.

In just the last seven weeks, the Insurance Council of Australia (ICA) has declared catastrophes for a number of events; the Pinery bushfires in South Australia (November 26), the Sydney tornado (December 17), the Great Ocean Road bushfires in Victoria (December 26) and the bushfires in Western Australia’s south west (January 8).

ICA CEO Rob Whelan commented; “We’ve only just reached the midpoint of summer. Insurers are paying out more than $1.3 million each working day in repairs, building works, settlements and assistance to policyholders just for these four disasters.

“That figure doesn’t include the losses from many other smaller events, including recent flood and storm damage in parts of Sydney and the Hunter region.”

Australian perils are increasingly forming part of the insurance-linked securities (ILS) market, as ILS fund managers participate in collateralised reinsurance contracts and private ILS deals exposed to natural catastrophes and weather events in the region.

Earlier this year a number of ILS funds were exposed to storms in Australia, resulting in ILS managers having to adjust net asset values to allow for small levels of claims that flowed through. This is expected to be a more regular occurrence as ILS fund managers increasingly look to Australian risks as diversifiers and grow their participation in the regions reinsurance market.

The insurance industry loss from this recent spate of catastrophe and severe weather events is expected to grow further, and does not represent all recent events as Whelan explained above. Also claims continue to be filed and so the final figure could be higher as a result.

Whelan continued to explain that insurers plan for such events and these losses fall within the expected range. “Insurers anticipated the potential for a destructive summer, and the losses are within their expectations,” he said.

Breaking down the events, the ICA said that insured losses for the Pinery bushfires have risen to $170 million from 1991 claims, with commercial losses making up 73%. The Sydney tornado resulted in 4282 claims, with insured losses passing $202 million, with 72% of insured losses commercial. The Great Ocean Road bushfires saw $86 million of insured losses from 482 claims and the Yarloop bushfires in Western Australia’s south west produced 616 claims and insured losses of over $57 million.

ILS funds have been hit by this spate of losses in Australia, with the bushfires hitting some through private ILS contracts and an ILS fund reporting negative performance in November due to exposure to an Australian aggregate reinsurance cover.

As ILS funds expand their reach and penetrate increasingly deeply into reinsurance markets in regions such as Australia, the exposure to an aggregation of attritional catastrophe or weather events in growing.

This makes diversification increasingly important for some ILS managers, as well as ensuring their country exposures are at differing levels of attachment so not all of their single country assets can be hit at once.