Sydney NSW storm insured loss estimate AUD$129m, expected to rise

Industry insured losses from the east coast low pressure storm that has affected New South Wales, Australia, particularly the Sydney area, are estimated to have reached $129m but could have much further to rise, according to reports.

Update: The industry loss estimate rose to AUD$244m.

The Insurance Council of Australia reported that the storm that affected parts of New South Wales, especially the Central Coast, Hunter, Greater Sydney Metropolitan and Illawarra regions, has resulted in over 19,500 claims being registered with insurers as of early this morning, with insured losses estimated at $129 million.

It is extremely early to be publishing a loss estimate, claims will still be filed throughout the coming days and in fact the low pressure system continues to affect the region with heavy rain and damaging winds. As a result the final insurance industry loss is thought likely to rise much higher.

Insurance Council CEO Rob Whelan explained; “These storms have caused damage across large parts of NSW. Though most claims so far have been for low-level property damage, mainly from water and wind damage to homes and damage to cars, insurers are also receiving claims for severe damage to houses and roofs. Claims are also being received for stormwater inundation.

“I expect these numbers will rise quickly as home owners and businesses assess the damage to their properties and lodge claims with their insurer or through their insurance broker.”

Reinsurance broker Aon Benfield’s risk modelling unit Impact Forecasting reported likened the storm to a 2007 east coast low that struck New South Wales and in the end resulted in more than 90,000 insurance claims and an industry insured loss of AUD$1.74 billion (normalised to 2011).

It seems doubtful that the current event will reach that high, but it certainly has room to double or more the industry insured loss estimate. One Australian primary insurer spokesperson told Artemis the company expects to see AUD$100m in losses, suggesting the industry loss estimate will have much further to rise.

Added to losses from the Brisbane hail storm, that struck in late 2014 and resulted in over AUD$1 billion of losses, plus cyclone losses from Marcia which rose above AUD$400m, catastrophic weather events are beginning to take a toll on insurers and reinsurers exposed to Australian risks.

What does this mean for insurance-linked securities (ILS) funds? Well there is further potential for erosion of aggregate deductibles on reinsurance layers that ILS fund managers participate on. ILS managers had reserved for the Brisbane hailstorm in November and reported some further erosion of deductible layers due to cyclones in February.

With ILS and third-party capital’s ongoing penetration into traditional reinsurance layers through collateralized reinsurance structures, the exposure to these types of event is increasing all the time. Australian perils are seen as an attractive diversifier for ILS funds that have collateralized components to them.

As a result any event in Australia that results in an industry loss of around AUD$500m will pose a potential threat to some ILS vehicles and funds. Whether this east coast New South Wales storm event will see losses creep that high remains to be seen.

Impact Forecasting’s report on the storm’s impact can be found below:

An intense East Coast Low continues to impact portions of New South Wales, as the system has produced exceptional amounts of rainfall that have led to floods in some parts of the state. Significant amounts of rain continued to fall in some areas during the day Tuesday and into Wednesday. At least three storm-related fatalities have been reported. Winds gusting to 135 kph (84 mph) have added to the severity of the event, which prompted significant travel restrictions in Sydney and Newcastle. At the time of this writing, the Insurance Council of Australia (ICA) has declared the event a catastrophe but no state of emergency has been declared by local authorities.

Meteorological Recap

Australia’s Bureau of Meteorology (BoM) issued a severe weather warning on Monday 20 April, for heavy rainfall, damaging winds, and dangerous surf conditions for Sydney Metropolitan, Illawarra, Hunter, Central Coast, and Mid North Coast districts. Flood watches were also issued for the New South Wales coast from the Manning Valley to the Central Coast with moderate to major flooding forecast for the Paterson and Williams Rivers from Tuesday morning.

The situation began to unfold as an “East Coast Low” developed in the wake of a cold front that moved northeastward across Victoria on Sunday. An East Coast Low is any intense area of low pressure that affects the eastern coast of Australia. This particular low formed over the Tasman Sea, off the coast of New South Wales, and rapidly intensified through Monday afternoon and evening, whilst remaining offshore, near Newcastle, bringing severe weather to parts of New South Wales into Tuesday. East Coast Lows are not uncommon and they can form at any time of year, though they are more likely to form from March through August. East Coast Lows, although relatively short-lived, can be very destructive as they can bring high winds, very heavy rainfall, and rough seas that often result in structural damage, floods, and coastal damage.

Throughout Tuesday, the center of the low remained close to the coast of New South Wales while moving slowly southward bringing further torrential rain to the heavily populated regions of Newcastle, the Central Coast, Sydney, and Wollongong. At the time of this writing, rainfall was expected to ease in some areas. Improved weather was forecast to continue during the afternoon and evening on Wednesday.

Event Details

In addition to torrential rainfall, the storm also brought typhoon-strength winds to several coastal locations throughout New South Wales. Stations at Norah Head, Newcastle Nobbys, and Wattamolla all reported peak winds gusts of 135 kph (84 mph) on Tuesday morning. Maximum sustained winds for all of these locations were in excess of 100 kph (62 mph). In the Sydney Metropolitan area, a peak wind gust of 104 kph (65 mph) was recorded at North Head. At Wattamolla (approximately 32 kilometers (20 miles) south of Sydney), peak wind gusts remained at or above 100 kph (62 mph) from 02:25 PM (AEST) on 20 April through 07:30 PM (AEST) 21 April.

The rain, high winds, and flooding caused a virtual shutdown of transport systems from Tuesday afternoon into Wednesday. Train, bus, and ferry services throughout New South Wales were all subject to cancellations and long delays. Government officials in Newcastle urged people in the affected areas to leave work early as conditions were expected to worsen into the late afternoon and evening before easing tomorrow morning. Emergency services also sent out alerts warning residents of “rapid rises and high velocity flash flood water in local creeks, watercourses, and urban areas” in Newcastle and its surroundings.

The community of Dungog, in Hunter District, suffered flooding that inundated at least 20 homes as the Williams River rose to a level of 8.53 meters (27.99 feet) by 07:45 PM (AEST) from a base level of 0.42 meters (1.38 feet) at 02:00 AM (AEST) on Tuesday. (Flood level for the Williams River at Dungog is 4.90 meters (16.08 feet).) Preliminary reports attributed the deaths of three individuals in Dungog to the severe weather. Local media also reported that some five homes in the community had been washed away by the floodwaters. Throughout New South Wales, several more communities were impacted by flash floods that inundated roads and other low-lying areas. In addition, numerous residential and commercial properties had their roofs blown off by strong winds. Trees and power lines were downed throughout the affected areas leading to 215,000 outages at the peak of the storm. Ausgrid estimate that it may be several days before power supplies can be fully restored. Almost 50 schools were closed on Tuesday morning and were expected to remain closed until Thursday. At the time of this writing several major and minor flood warning remained in place for rivers in the Hunter region.

Financial Loss

As of Wednesday 22 April at 07:00 AM AEST (09:00 PM UTC) the Insurance Council of Australia had received 19,500 claims pertaining to the storm. These claims have an approximate value of AUD129 million (USD100 million) and were expected to rise as further assessments are made. Further details are expected to emerge later this week as damage assessments are undertaken when weather conditions improve.