Reinsurance to Absorb Bulk of Insured Losses in Queensland Floods

Australia's major nonlife insurers said they have reinsurance programs in place to cover the limit of claims related to the widespread Queensland floods, which are now spreading to the province's capital city Brisbane.

Suncorp Metway Insurance Ltd. said a preliminary estimate for its pretax losses from flood-affected central and southwest Queensland is expected to be between A$130 million(US$128.6 million) to A$150 million. This cost will be included in the group's half-year result for the period ending Dec. 31, 2010, said the Brisbane-based nonlife insurer.

The largest nonlife insurer in Queensland said it had received about 2,500 claims related to the first round of floods to hit central and southwest Queensland starting Dec. 25, 2010.

Claims related to storm and flood damage in Brisbane and southeast Queensland since Jan. 8 would be limited by a reinsurance program to between A$70 million and A$90 million. "It is also likely to incur additional reinsurance cost of around A$120 million to reinstate multiple covers for the remainder of the financial year," said Suncorp.

As a result of the Queensland floods and other natural peril events in the first half, Suncorp said the group expects "to have eroded between A$220 million and A$240 million of retained costs under its aggregate reinsurance program."

The aggregate reinsurance cover, along with the group's property catastrophe program, will limit the financial impact of further weather events including the current flood in Brisbane and southeast Queensland, over the remainder of the 2010-2011 financial year ending in June, according to Suncorp.

Among Australia's other major nonlife insurers, QBE Insurance (Australia) Ltd. and Allianz Australia Insurance Ltd., have yet to announce any estimates for claims relating to the Queensland floods.

Insurance Australia Group Ltd. said it had received about 1,200 claims arising from heaving rain related to Tropical Cyclone Tasha in late December. The insurer's current expectation is for a net claims loss of between A$10 million to A$30 million.

Total natural peril claims for the six months to Dec. 31. 2010 was estimated in the range of A$120 million to A$140 million, said IAG.

IAG said it has received about 2,400 claims from the more recent floods in southeast Queensland, starting in early January. "Given the ongoing nature of this event, it remains too early to determine the likely claim cost which will be included in the group's result for the second six months of this financial," said the Sydney-based insurer.

The reinsurance program renewed in January 2011 was structured similarly to that of 2010, said Mike Wilkins, managing director and chief executive of IAG, in a statement. The group's maximum event retention for a first event in the 2011 calendar year is A$150 million.

Queensland was also hit by high catastrophe losses in the previous fiscal year (BestWire, March 9, 2010).

Heavy rainfall has caused flood waters in Queensland to continue to spread east. As of Jan. 11, Brisbane has been threatened by the flood, with up to 40,000 properties at risk. "If Brisbane is severely impacted in the next few days then insured losses could escalate significantly," said risk modeler Risk Management Solutions.

The Insurance Council of Australia said insurers are still undertaking claims assessments for property and motor vehicles affected by the floods. As of Jan. 7, the nonlife insurance industry received about 4,300 claims from Queensland policyholders with an estimated insurable loss of about A$150 million. The council said these are preliminary estimates.

Economic losses, estimated at A$5 billion before southeast Queensland threatened by flooding, are now expected to increase significantly, said reinsurance broker Guy Carpenter & Co. in a report. Many more people are expected to be affected as Brisbane has undergone considerable development in the past 35 years. More than 30 suburbs are expected to be submerged by flood water.

It is expected that the event could cut 1% off Australia's projected economic growth, equal to almost A$13 billion, according to Guy Carpenter. "It is still too early to gauge how the floods will impact (re)insurers as cover for flood damage is not standard in many buildings and contents insurance policies in Australia," said the report.

As the world's biggest exporter of coal, Queensland has 40 coal fields that have halted in operations, forcing mining companies to declare force majeure. The Brisbane port was closed, shutting down Australia's third-busiest container port and a 5-million-ton per year coal-loading facility. A total of 40 towns and cities in Queensland have been badly flooded, with thousands of properties inundated, according to Guy Carpenter.

(By Iris Lai, Hong Kong bureau manager: [email protected])