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IAG rethinks losses as ICA declares fifth catastrophe

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IAG has raised its guidance on catastrophe losses for this financial year, following six extreme weather events since last November that have generated $2.24 billion in claims.

The Insurance Council of Australia (ICA) has declared the weekend’s Brisbane storm, which killed six people, the fifth catastrophe this calendar year.

It follows the Anzac Day hailstorm in Sydney, NSW storms last month, Cyclone Marcia in February and the SA bushfires in January.

“It’s very concerning that we’ve had this series of catastrophes,” spokesman Campbell Fuller said.

“Insurers expect storms at this time of year, but the latest extreme low-pressure system is causing extensive damage in many parts of southeast Queensland and NSW.”

ICA estimates losses of $26 million from 7500 claims following the storm that hit Queensland from last Thursday night until yesterday, mostly for inundation.

The declaration of five catastrophes in the past few months is not a record; in 2011 ICA declared eight, bringing losses of $4.9 billion.

Of the six catastrophes since November, the most costly was the first – the Brisbane hailstorm – which has generated 120,444 claims, mostly for motor vehicle damage, and estimated losses of $1.35 billion, including $838 million for domestic claims and $512 million for commercial. There were 78,042 domestic motor vehicle claims and 22,500 residential property claims.

The second-biggest event was Cyclone Marcia, with 35,366 claims and estimated losses of $446 million, including $307 million for domestic claims and $139 million for commercial.

In NSW, more than 1900 claims have been received by insurers for the Sydney hailstorm alone, with initial losses estimated at $125 million. Most are for light damage to homes and vehicles, though some commercial claims have also been received.

ICA CEO Rob Whelan says insurance assessors have been brought in from interstate and overseas to help clear the workload following the NSW storms.

Under ICA’s catastrophe arrangements, insurers will prioritise claims for hailstorm losses.

For the NSW storms, 68,243 claims had been lodged by today and estimated losses are $301 million.

Domestic claims include 18,964 for residential property, 11,237 for contents and 1987 for motor.

For the SA bushfires, 996 claims have been lodged, with losses of about $36.6 million, including $24.6 million for domestic and $12 million for commercial. About 61% of domestic claims have been closed.

IAG has revised its natural peril claims cost guidance to $1 billion for this financial year, up from $700 million.

It says this includes $250 million in costs from NSW storm damage and $50 million from the Sydney hailstorm. It also covers adverse claims developments for previous large events, including $140 million for Marcia, up from the $60-90 million range provided in March due to ongoing commercial claims from remote areas.

IAG now expects to fully use its reinsurance program, which provides protection of $150 million above $700 million for perils this financial year.

MD and CEO Mike Wilkins says while the insurance margin will be affected, the business’ underlying performance remains strong.

Standard & Poor’s (S&P) expects IAG and Suncorp to be most exposed to the NSW storms because they have the highest non-life market shares in NSW – 40-45% and 30-35% respectively.

Suncorp’s reinsurance limits its net cost from the NSW storms to $135 million, but it has already exceeded its full-year natural peril allowance, so further peril losses will drag earnings below guidance, the ratings agency says.

The impact of NSW storm claims will be “material but manageable” due to insurers’ reinsurance programs. “The credit impact on insurers that we rate should therefore be limited.”

According to ICA data, about 91% of home policies in NSW have active flood cover, which S&P says may be a source of uncertainty on final claims costs.

Mr Fuller says the recent catastrophes reinforce the need for governments to work together on mitigation and resilience measures.