Rate hardening cycle extended after floods: S&P

The record-breaking February/March floods, with insured losses of at least $4.3 billion, will prolong the rate hardening cycle as insurers price in the impact of the catastrophe, according to S&P Global Ratings.

The rating agency says it expects primary property and casualty (P&C) insurers to experience continued upward pressure on reinsurance prices for property lines in particular, and across aggregate excess of loss protection covers, following the floods.

As a result higher premium rates were passed on to policyholders, and excess claims were shared with reinsurers, S&P says in an annual report on the Australian P&C sector.

“It is fair to say the severity of the February/March floods has extended the premium rate hardening cycle through 2022 for affected lines,” Insurance Analyst Michael Vine told insuranceNEWS.com.au.

“This is from the ongoing review of risk exposure in catastrophe regions, along with the broader impact of claims inflation on repair and replacement costs, and pressure from hardening reinsurance rates on renewal.”

The flood catastrophe is the latest disaster to hit Australia, adding to the insurance industry’s rising claims costs from bushfires, storms and other extreme weather events since February last year.

S&P says the NSW/Queensland floods, combined with previous catastrophes starting with the Perth Hills bushfire in February last year, have resulted in losses of more than $5.5 billion.

“The catastrophe intensity has heightened in recent years, most notably the February 2022 South East Queensland and New South Wales floods that caused extreme and unprecedented losses,” the S&P report says.

“The impact on the insurance industry of these catastrophes has been tempered by sound earnings from other lines.”

S&P is expecting “solid” headline growth in GWP of about 6% per year for P&C insurers across personal and commercial lines.

“This growth reflects higher pricing for risk including catastrophes and claims inflation supplemented by moderate unit growth off the back of continued modest GDP growth,” the S&P report says.

S&P says its adjusted view of GWP growth sits at 10.8% for 12 months March this year and that it expects growth of 7.5% for this calendar year.

It sees GWP growth moderating to 6% next year and 5.5% in 2024.

“Growth should benefit from higher premium rates, supplemented by the return of unit growth,” the S&P report says.

“Home and contents experienced material increases in premium rates while volume growth in motor drove top line growth. Claims have recently been affected by natural perils and higher repair costs.”