Insurers to cover latest flood claims without reinsurance: S&P

Australian-based insurers will be able to largely self-finance claims from the latest Victorian, northern Tasmania and NSW flooding without drawing upon catastrophe reinsurance, but the event will still have implications for availability and affordability pressures, S&P Global Ratings says.

Catastrophe reinsurance cover is unlikely to be triggered even if further rain and flooding are likely over the coming week, and insurers’ earnings will erode only slightly, S&P says in a report today.

“Claims due to the current floods are coming largely from content cover for home and small businesses and agricultural lines, rather than material property damage,” it says.

The Insurance Council of Australia yesterday declared the floods a “significant event”, with the impacts set to be more modest compared to past catastrophes, including the southeast Queensland and NSW floods earlier this year.

Those floods are Australia’s worst on record, generating claims totalling around $5.45 billion, and came following an active period for catastrophes, including floods, hailstorms, bushfires and an earthquake.

“Insurers’ setting of natural peril allowances have been insufficient in recent times. This shortfall has lifted premium rates and the cost of reinsurance,” S&P says.

“Weather events such as the current floods will further constrain the availability and affordability of flood insurance cover.”

Direct fiscal costs to governments and damage to the economy will be manageable, S&P says.

The states are responsible for most of the immediate relief efforts and will boost grants to local councils to repair infrastructure such as roads and bridges, with the Federal Government typically reimbursing up to 50-75% of costs through Disaster Recovery Funding Arrangements.

Annual federal outlays under the program averaged less than $2 billion for most of the past decade, which is low compared with the national fiscal deficit, S&P says.

Economic losses from the latest events should also be smaller than for the February floods, which knocked an estimated half a percentage point off gross domestic product growth in the March quarter.