While Australia is “well-placed” to cover the circa A$5bn ($3.32bn) insured losses stemming from extreme weather in the country since November, the disasters will “undoubtedly” affect price and availability of insurance going forward, according to the country’s regulator.
Speaking to the Senate Economics Legislation Committee in Canberra today (6 March), the chair of Australia’s Prudential Regulation Authority (APRA), Wayne Byres, said current estimates for total insured losses as a result of bushfires, storms, hail and floods across Australia “are projected to be in the order of $5bn.
“Pleasingly, the financial position of the insurance sector means it is well-placed to cover these claims,” he continued.
To ensure Australia “has the financial wherewithal” to deal with this high volume of claims has involved APRA taking a close look at the adequacy of domestic insurers’ reinsurance arrangements, Byers said, since “international reinsurance provides critical insurance capacity for the Australian market.”
He added: “Insurers have the capital strength and liquidity to meet their claims and, very importantly, remain well capitalised to respond to further events that may occur – especially as, for example, we are not yet through the Australian cyclone season.
“Nonetheless, the summer’s events will undoubtedly have an impact on the price and, in some cases, availability of insurance into the future.”
Since late last year, Australia has been hit by a barrage of severe weather events.
The 2019/2020 bushfire season that was described by broker Aon as “historic” is the worst on record, driven by a combination of record high temperatures, record low rainfall, extremely dry bushland and strong winds. In its latest estimation, the Insurance Council of Australia (ICA) pegged losses at A$1.9bn.
Loss aggregation firm Perils said there had been major property losses in rural towns with approximately 10 million hectares of burnt bushland since September across the affected states. This is an area similar in size to England and over 16 times the size of the 2018 California bushfires.
The demand surge for cover in the wake of the event forced two domestic insurers, Insurance Australia Group (IAG) and Suncorp, to temporarily halt the sale of new policies and claims processing in impacted regions.
IAG and Suncorp have both had to issue revised guidance for their full year results – pushing their share prices to recent 52-week lows – as a result of the losses and have both made significant reinsurance recoveries from H1 events.
Suncorp said in February it had exhausted up to half of the reinsurance limit under its A$300mn natural hazard aggregate protection following 2019 cat events including the bush fires.
Last month, the ICA calculated that losses from February flooding in Queensland and New South Wales had reached A$100mn ($67.4mn) as the event was declared a catastrophe. The council also pegged insured losses from January hailstorms at A$638mn as of 4 February.