Victoria, Australia flood catastrophe may drive reinsurance recoveries

Severe storms and flooding that impacted the Victoria region of Australia over the last week is likely to result in some reinsurance recoveries for the largest domestic insurers, with their natural hazards budgets all but used for the year.

The Insurance Council of Australia (ICA) declared a Catastrophe for regions of Victoria after the storms and floods, saying that at least 6,500 claims had been received  by Sunday.

The most impacted areas were in Gippsland, around Traralgon and in the Yarra Ranges, the ICA said.

While the toll is expected to rise as flood waters recede and claims are filed.

Andrew Hall, CEO, Insurance Council of Australia, commented, “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 more than 6,500 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.”

Suncorp is the first of the major Australian insurance groups to comment and it immediately highlighted how its reinsurance would limit exposure to the storms and floods.

The carrier said that as of Monday evening this week, Suncorp had received roughly 3,750 claims largely for property damage.

“As the full extent of damage caused by the heavy rain, severe winds and flash flooding is still unfolding, claims are expected to rise further in the coming days and weeks,” the insurer said.

Suncorp highlighted that its total natural hazard losses across Australia and New Zealand year-to-date to the end of May 2021 had reached $955 million.

That is around $40 million above the year-to-date allowance of $915 million, with the estimates excluding any associated risk margin or claims handling expenses.

Suncorp’s full year natural hazard allowance is $950 million, the company said, adding that its “comprehensive reinsurance program” and remaining coverage in place means that “the maximum potential loss from this event is $50 million.”

“What we’re seeing in Victoria should again act as a reminder to the devastation which can be caused by severe weather events,” Suncorp CEO Steve Johnston said.

Adding that, “More needs to be done to better protect homes in flood-prone regions across the country, including improved town planning and government investment in mitigation infrastructure.”

Analysts at Goldman Sachs said that they estimate that Suncorp could recover from its drop-down protection and perhaps a smaller amount from its aggregate reinsurance cover, depending on the ultimate size of the loss from the Victoria storms and resulting flash-flooding.

Once into that aggregate reinsurance, Suncorp should only retain $5 million of future natural catastrophe and severe weather events that impact the company through the rest of the year.

On another Australian primary carrier, IAG, the Goldman Sachs analysts said that reinsurance recoveries may also occur after this latest catastrophe in Australia.

IAG has already eaten into its aggregate reinsurance covers deductible, meaning the flooding is likely to just erode that further, but could result in a recovery if it turned out to be a much larger cat event than currently feared.

It means the aggregate reinsurance layer could be deemed much more at-risk for any further events that strike the insurer this month, the analysts explained.